Enron and Worldcom Case Study
Enron and WorldCom Case Study
This report is based on the demise of Enron Corporation and WorldCom. Both the firms are demised due to the ethical lapses. These ethical lapses come into existence when managements of the firm, uses unethical practices to accomplish the goals of the firm. Maintaining financial and accounting standards in the business practices are necessary. The profession of accounting has become a mockery due to the accounting scandals that took place all over the world in the last decade (Smith & Smith, 2003). The major companies involved in it are Enron, WorldCom, etc. By means of the following paper, the reader will be able to understand the various reasons that are associated with the ethical accounting practices, reasons behind dissolution of Enron and WorldCom, ethical violations done by Enron and WorldCom in accounting practices and the role of business ethics in financial strategic planning. Dissolution of Enron Corporation Established in 1985, Enron Corporation was formed with the acquisition of Houston Natural Gas by InterNorth. The fraud case of Enron is highly complicated. It is also that that failure of Enron is due to the implementation of accounting method 'mark to market'. The use of this method and other questionable practices made it complex to identify how the company was making profits. The profits were recorded in the books which influenced the stock price of the company. But Enron Corporation was not paying taxes according to the profits (Hinman, 2002). The accounting method used by Enron allowed it to make profits and maintain the growth without any taxable cash. The company underwent complex deals which no one could understand whether they were legal or not. Finally the leading energy corporation started falling. As the stock came down, raptors also declined. In the year 2001, Chief Executive officer of Enron Jeff Skilling resigned due to his personal problems. The resignation of CEO
This report is based on the demise of Enron Corporation and WorldCom. Both the firms are demised due to the ethical lapses. These ethical lapses come into existence when managements of the firm, uses unethical practices to accomplish the goals of the firm. Maintaining financial and accounting standards in the business practices are necessary. The profession of accounting has become a mockery due to the accounting scandals that took place all over the world in the last decade (Smith & Smith, 2003). The major companies involved in it are Enron, WorldCom, etc. By means of the following paper, the reader will be able to understand the various reasons that are associated with the ethical accounting practices, reasons behind dissolution of Enron and WorldCom, ethical violations done by Enron and WorldCom in accounting practices and the role of business ethics in financial strategic planning. Dissolution of Enron Corporation Established in 1985, Enron Corporation was formed with the acquisition of Houston Natural Gas by InterNorth. The fraud case of Enron is highly complicated. It is also that that failure of Enron is due to the implementation of accounting method 'mark to market'. The use of this method and other questionable practices made it complex to identify how the company was making profits. The profits were recorded in the books which influenced the stock price of the company. But Enron Corporation was not paying taxes according to the profits (Hinman, 2002). The accounting method used by Enron allowed it to make profits and maintain the growth without any taxable cash. The company underwent complex deals which no one could understand whether they were legal or not. Finally the leading energy corporation started falling. As the stock came down, raptors also declined. In the year 2001, Chief Executive officer of Enron Jeff Skilling resigned due to his personal problems. The resignation of CEO
Cited: Corporation Basics (2009). Retrieved February 9, 2010 from http://www.nolo.com/article.cfm/objectId/78FC3C83-30C0-4E57-9F6C7E7F8B45E726/catID/B491956E-A152-424B-A2342A5861B5EACF/111/182/241/ART/ Crawford, C. (2005). Ex-WorldCom CEO Ebbers Guilty. Retrieved February 9, 2010 from http://money.cnn.com/2005/03/15/news/newsmakers/ebbers/ Hinman, L.M. (2002, March). A Moral Challenge: Business Ethics after Enron. Retrieved February 9, 2010 from http://ethics.sandiego.edu/LMH/op-ed/Enron/index.asp Smith, K.T. & Smith, L.M. (2003, June 21). Business and accounting ethics. Retrieved February 9, 2010 from http://acct.tamu.edu/smith/ethics/ethics.htm Subramanyan, S. (2002). Business ethics: Precept easier than practice. Retrieved February 9, 2010 from http://www.thehindubusinessline.com/2002/10/08/stories/2002100801900900.htm