Q1. Briefly explain the factors that led to the demise of Enron? How such an incident could occur despite all the checks and balances imposed by the Securities Commission of USA?
Q2. Do you agree with the author that the firm Arthur Anderson is morally responsible for the hurt experienced by the Enron employees? Why or why not?
Q3. Should financial analysts be held responsible for the losses suffered by investors when things do not go right as per their advice? Why or why not?
4 comments:
Answer : From my view, the Financial Analyst must be responsible about a suffered by the investors, have a few reason has supporting of my statement :-
1) As the scandal was revealed, Enron shares dropped from over US$90.00 to less than 50¢. As Enron had been considered a blue chip stock, this was an unprecedented and disastrous event in the financial world. Enron's plunge occurred after it was revealed that much of its profits and revenue were the result of deals with special purpose entities (limited partnerships which it controlled). The result was that many of Enron's debts and the losses that it suffered were not reported in its financial statements.
2)The executives and insiders at Enron knew about the offshore accounts that were hiding losses for the company; however, the investors knew nothing of this. Chief Financial Officer, Andrew Fastow led the team which created the off-books companies, and manipulated the deals to provide himself, his family, and his friends with hundreds of millions of dollars in guaranteed revenue, at the expense of the corporation he worked for and its stockholders.
3)On August 14, 2001, Jeffrey Skilling, the chief executive of Enron, a former energy consultant at McKinsey & Company who joined Enron in 1990, announced he was resigning his position after only six months. The reasons for leaving the business are personal, Skilling had sold at minimum 450,000 shares of Enron at a value of around $33 million (though he still owned over a million shares at the date of his departure).
4)On October 17, 2001, Enron announced that its third-quarter results were negative due to one-time charges of over $1 billion. Enron management claimed the losses were mostly due to investment losses, along with charges such as about $180 million in money spent restructuring the company's troubled broadband trading unit.
5)On October 22, 2001, the share price of Enron fell to $20.65, down $5.40 in one day, following the Securities and Exchange Commission's(SEC) announcement that it was investigating several suspicious deals struck by Enron, pronouncing "some of the most opaque transactions with insiders ever seen".
6)The SEC announced it had filed civil fraud complaints against Arthur Andersen LLP, Enron's auditor(one of the world's top five accounting firms).
7)Fallout from the scandal quickly extended beyond Enron and all those formerly associated with it. The trial of Arthur Andersen LLP on charges of obstruction of justice related to Enron helped to expose accounting fraud at WorldCom.
Though at the time of its collapse, Enron was the largest bankruptcy in history, this has been eclipsed by the collapse of WorldCom and most recently, the collapse of Lehman Brothers.
By Jashamsulnizam b. Md. Jani(IUSM 0708/0881/1)
Bachelor of Management (Hons)
Assalamualaikkum and Selamat Hari Raya to Mr. Mohamad Jais, I give my answer for third question.
Q1 : Factor that led to the demise of Enron is also not paying taxes during four of the five size years prior to its collapse. Enron s rise and fall resulted from a confluence of several factors are the new economy in which blind trust replaced the healthy suspicion on which the conduct of business depends. Then, is the new culture at Enron, which was characterized by greed, ambition, and contempt for those who where not on board with the culture. Lastly, new accounting which was represented by bankers and auditors who were supposed to make good business judgments about the soundness of Enron s decision making but did not do so for of repercussions.
The theory of deontological is a coherent that an action is right or wrong not because on benefit to own or else but because of own attitude or rules. The characteristic of deontological are the focus to the individual belongings and their attitude from any causes. The strength of deontological are means for another cases is less relevant and describe a reason to explain the action. While for the weakness of deontological is difficult to know the moral obligation and how to settle the obligation conflict.
Q2 : Agree, because the accounting firm Arthur Anderson has to take some of the responsibility for the mortal hurt experienced by Enron employees. Then, Anderson has signed off on all of the deals that Enron had made, sometimes under pressure, but it had still signed off.
Anderson had profited tremendously from its relationship with Enron bust as Enron fell, Anderson stood to loose badly. Then, the end of Enron might mean the end of businesses we know it. There seems to be general, if muted, agreement, that Enron case has shown us a terrible, possibly lethal, weakness in our business system. When wrongdoing is this extensive, long-lived, and shockingly serious, we know well that the problem goes beyond the few bad apples.
Kantian Theory is depending on the moral principle. Moral obligation has nothing to do with consequences, but arises solely from a moral law that is binding on all rational beings. Its something that we ought to do and others that we ought not to do by virtue of being rational. The moral obligation has nothing to do with consequences, but arises solely from a moral law that is binding on all rational beings.
Mr. MJ, sorry I'm late for posting the following answer.
regards
Jay-Sham(Ahlifikir2.blogspot.com)
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