Case Study Enron Scandal

1. Five standards/principles that Enron violated

a. Enron used the mark to market accounting method to boost their actual
revenue to attract a lot of investors, when in fact it’s just their estimated
revenue and also to increase their stock price.
b. Enron manipulate the derivatives resulting to overstated income and equities
and the management used it to cover their debts and losses from the public.
c. The off-balance sheet method take part on the scandal wherein they misuse
of the Special Purpose Entities (SPEs) to cover their losses and debts from
their investors.
d. When Enron entered into a contract with Blockbuster, Enron did to their
future revenue from the contract was they took and booked it as a revenue
today overstating their income and equities resulting to high stock price.
e. The accounting firm that handled Enron which is Arthur Andersen act as their
auditor and the consultant who happens to know the fraud activities inside the
company approve the company’s report and help them to hide the wrong
doings.
2. 3 unethical acts in the Case
a. The misuse of Special Purpose Entities (SPEs)
- Enron stock fell down, their SPEs also fell. This situation trigger the
Enron’s executives to do something about their losses so they misuse
of the SPEs by using it as their shield when one their asset are falling
in value to cover their losses and make it as their profit and at its
discovery they justify it that they did nothing wrong.
b. The executives mislead the board about the financial status of Enron and
on the risks of the accounting practices that was applied
- Due to the fraudulent act of the executives and the greed of power and
wealth. The executives decide to cook their books if the situation is
unfavorable on their side and present to the people that they are still
continuing and progressing but when their acts are discover they
denied it like what Jeffrey Skiing did.
c. The irresponsible act of the executives
- So the executives put their self-first before the stake of the company.
When the company is in trouble they find a way that would fed their
needs first then the company. So when they can’t handle the problem
they made they sold their stocks then leave the company before its
downfall.

3. 3 changes that were made to Accounting and Auditing standards brought by the Enron
Case.
Because of the Enron scandal the Sarbanes Oxley Act was created to help in
minimizing fraudulent act in a company or organization the followings are just
pinch of the changes made:
a. Auditors will report all the new information to the audit committee not to
management.
b. The Audit committee will approve the audit and non-audit services by its
auditor.
c. There will be a rotation of duties between the lead audit partner and the audit
review partner.