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Scandal… how it is starts?

A city boy, Kenny, moved to the country and bought a donkey from an old farmer for $100.00.
The farmer agreed to deliver the donkey the next day.
The next day the farmer drove up and said, "Sorry son, but I have some bad news, the donkey died last
Kenny replied: "Well then, just give me my money back."
The farmer said: "Can't do that. I went and spent it already."
Kenny said: "OK then, just unload the donkey."
The farmer asked: "What you goanna do with him?"

Kenny: "I'm going to raffle him off." (Note: To raffle is to sell a thing by lottery - draw lot - to a
group of people
each paying the same amount for a ticket)
Farmer: "You can't raffle off a dead donkey!"
Kenny: "Sure I can. Watch me. I just won't tell anybody he's dead."
A month later the farmer met up with Kenny and asked, "What happened with that dead donkey?"
Kenny: "I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of 998.00."
Farmer: "Didn't anyone complain?"
Kenny: "Just the guy who won. So I gave him back his two dollars."
Kenny grew up and eventually became the chairman of Enron.

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 Enron began in 1985 and it started as inter state pipeline company.
 Enron is formed by the merging of Houston Natural base and Obama
based InterNorth.
 In 1988 it opens an office in UK & further extended to Gas Bank in 1989.

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Enron-Rise and Fall

 Long term suppliers of natural gas
 Holdings in U.K., Europe, South America and India
 Broadband unit with natural gas business
 Mark to Market Accounting practices
 Constant losses
 Largest bankruptcy in U.S. market
 Suicides and imprisonments Former Enron Enron founder Ken Lay
CEO Jeff
 Accountancy firm given maximum obstruction Skilling
 4000 employees lost job
 Charges against trading lay
 11 criminal charges, including security and wire fraud, making false statements

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What went wrong?

 Accounting and corporate governance in the United States, ethical quality of the culture of business
generally and of business corporations in the United States.
 Change of business strategy and corporate culture to satisfy false means.
 Lack of efficient board of directors.
 Off book accounts.
 Excessive stock options and excessive corporate compensation.
 Financial cleverness.
 Misuse of Government rules and regulations.

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Unethical practices & Culprits

 1993-2001: Enron senior management used complex and murky accounting schemes to reduce Enron’s tax
• to inflate Enron’s income and profits
• to inflate Enron’s stock price and credit rating
• to hide losses in off-balance-sheet subsidiaries
• to engineer off-balance-sheet schemes to funnel money to themselves, friends, and family
• to fraudulently misrepresent Enron’s financial condition in public reports

 Lax accounting by Arthur Anderson (AA) Co?
 “Rogue” AA auditor David Duncan (fired 1/15/02)?
 Enron’s management for hiding losses in dubious offbalance-sheet partnerships?
 CFO Andrew Fastow for setting up these partnerships (10 year prison sentence 1/14/02)?
 CEO Jeff Skilling (24 year prison sentence 10/23/06)?
 CEO Kenneth Lay (died 7/23/06 with charges pending)?
 Media exaggeration and frenzy?
 Stock analysts who kept pushing Enron stock?

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Business Ethics violated

 Auditing companies consult for the companies they audit.
 Auditing companies often accept jobs from their client companies
 Appointment of accounting company by shareholders in practice but by
senior management in actual.
 Board of directors are paid largely in stock
 Directors can sell early on the basis of insider information

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What needs to be done to avoid these scandals?

 Strong laws to avoid money laundering
 Government control over corporate governance
 Accounting practices need to be monitored by Government
 Auditors to be changed every three years
 Executive accountant shall not be from the auditing firm
 Proper regulations on stock options buying and selling

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Conclusion and Questions remaining

 How to bring accounting firms and financial analysts to
integrate CSR norms ?
 … guarantee that these norms represent reality ?
 … ensure company governance ?
 … make companies responsible not only towards shareholders ?
 … “de-co-opt” media and other organizations ?
 … increase the integrity of business students and managers ?
 … diminish the phenomenon of “ethical leveling”, denounced by
Kierkegaard in …1850 !?

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Speakers – slidewise

Slide 2 – Shainy
Slide 3 – Amit
Slide 4 – Sathish
Slide 5 – Rajesh
Slide 6 – Ramesh
Slide 7 – Dinesh
Slide 8 – Umesh
Slide 9 – Himanshu
Each one has to prepare speech for 1 min.
We will have 2 practise sessions on 9th at 5.15 pm as the presentation might be
scheduled for 10th .
Study material on what to speak: You can get it from other attached PPTs / PDF
sheeets. We need not speak on each item. Pick up key points in your
respecitve slides & prepare for a speech of exact 1 min. (it can be slightly
more than 1 min, but not less than 1 min)

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