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Essay on Ethics Analysis
The case that I have selected to illustrate the ethical analysis in the financial management is the Enron cost accounting case.
Enron filed for Chapter 11 bankruptcy, the largest in U.S. history at the time in December 2001. Enron reports $638 million third-quarter loss and discloses $1.2 billion reduction in the value of shareholders' stake in the company, partly related to a web of partnerships run by Chief Financial Officer Andrew Fastow that had helped the company inflate profits and hide debt.
The former energy giant was undone by accounting fraud and off-the-balance-sheet transactions. In the Enron case, many players were involved in fraud at compounded levels. Investigations have implicated several former high-level executives and have brought into question the roles of many others. Enron's accounting firm, Arthur Anderson, LLP, has already been convicted of obstruction of justice because the firm allegedly destroyed documents pertinent to the Enron case such as that of NASA and Waste Management Company where it was charged $ 7 million as fine. (Jennifer Bayot, June 10, 2005)
As details came into the knowledge of public, about the accounting shenanigans that led to Enron's collapse, federal regulators note the case is simply the latest in a growing sequence of high profile scandals at major U.S. corporations in recent years. Before Enron slid into bankruptcy, wiping out the retirement savings of many of its employees, several high-profile companies attracted Security Exchange Commission interest, and ultimately paid fines, to settle accounting charges. Many Enron employees had invested most of their 401(k) savings in company stock and lost their life savings when it went bust.
Andersen, which admitted to destroying Enron-related documents, was sentenced to probation and fined $500,000; firm was already banned from auditing public companies. The SEC said the company failed to stand up to the biggest U.S. trash carter to prevent accounting irregularities....
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