One Tel Scandal

Part D

In a way, Enron went bankrupt for the same general reason that One Tel goes bankrupt: they invested in projects that proved too risky and, in turn, they were unable to keep up with the debt obligations of the firm (Niskanen, 2005, p. 2). For Instance, President of Enron International (EI), Mark pursued a business strategy that involved the acquisition or development of capital-intensive and high-debt projects such as the Dabhol Power Plant (Niskanen, 2005, p. 3) while One Tel got stuck in aggressive and costly customer acquisition campaigns. Enron and One Tel undergoing rapid expansions and their share prices were worth at their peak and dropped vigorously.

Futhermore, both of the cases the director failed to accomplish their fiduciary duty to disclose a true and fair (financial and non-financial) statements to the general public by falsified audit that in turns leading the public into creating high hopes for stakeholders. One-Tel’s financial reporting did not faithfully represent its economic performance and thus was of bad quality. As stated in ASIC v. Rich (2009, NSWSC 1229), Jodee Rich gave evidence that he did not typically see, inter alia, One-Tel’s trial balances, spreadsheets underlying monthly board reports, reports on ageing of debtors and creditors, to-be-billed reports, and unpresented cheque listing. As for Enron there is a abuse of accounting and disclosure policies such as mark-to-market accounting, using inadequately capitalized subsidiaries and SPE’s for “hedges” to reduce earnings volatility and utilization of SPE’s to hide debt. In addition, both of the cases had ignored the fact of non-conservative accounting policies and its auditor failed to issue any going concern opinion as One Tel has been warned the merchant bank Merrill Lynch warned that One-Tel was in danger of running out of cash in October 2000 so does Enron has been warned they have insufficient reserve to cover the future liability....