Discussion Case: Professional and Managerial Responsibility at Enron and Arthur Andersen

Assessment task 1

DesJardins, J. (2009). ‘Discussion Case: Professional and Managerial Responsibility at Enron and Arthur Andersen’, in An Introduction to Business Ethics. (3rd edn.).   Boston:   McGraw-Hill, pp. 141-145.

This text is about the reasons and the process of the bankruptcy of Enron – the corporation once ranked the seventh largest of Fortune 500 with its stock’s value around $90 per share but went to bankrupt just one year later with its stock valued at just pennies per share on December 2, 2001, which was considered as an amazing ruin. The main reason came from its accounting firm Arthur Andersen that is a story of greed, dishonesty, and corruption.

Enron’s relationships with the Special Purpose Entities (SPEs) which companies senior management at Enron chose to balance their risks by entering into agreements with, were the heart of the company’s corruption and collapse. Taking advantages from accounting regulations, Enron created the partnerships with the SPEs, in which using its stock as collateral, Enron supplies assets, SPEs supplies capital and the joint venture proceeds. Although this process seems to be technically legal, it is an accounting deceit. That is because the money raised for joint venture is used to pay off debt on Enron’s assets which allowed Enron to record a lowering of its liabilities without also recording the corresponding increased liability. There are three aspects of these relationships are particularly egregious which are instead of using SPEs to minimize risks of legitimate joint ventures like other business and financial institutions, Enron’s SPEs had little use other than to shift debt and risks off Enron’s financial balance sheets; Enron’s Chief Financial Officer, Andrew Fastow took advantage of his position to make millions of dollars from these partnerships, and the most important thing is that Arthur Andersen, Enron’s accounting firm supported Enron through providing allegedly unbiased and accurate financial...