Accounting theory Major Assignment (Enron's case study).pdf

Therefore the investment banks assisted enron in

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future. Therefore, the investment banks assisted Enron in manipulating their financial report in gaining more investors and to make it for Enron to sell its shares at a higher price which becomes a huge complicated problem. Poor Auditing Auditing has also played a significant role in causing problem to Enron’s operation. According to Cleents (n.d, Para.1-3), auditing is essential for maintaining the professional internal control, to prevent fraud, prevent mistreatment of assets, hence the need of independent of external auditing parties. Indeed, Enron has its own auditor, but the author was being influenced by the
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superior power of Enron, the potential reason to the unethical behavior by the auditor was that captured theory was being used to capture the attention of the auditor by promising high bonus scheme return for the auditor. According to the case, as Enron’s auditor was one of the five major auditing firms at America, the auditing firm was being given major contract by Enron to act a consultant and auditor to Enron. However, as the security and exchange commission ordered an investigation after suspecting unusual activities by Enron, the auditing firm of Arthur Anderson commits the second problem by shredding all the evidence and denying of acting on its self interest (Thomas, 2002, Para.45-52). Therefore, the auditing firm plays a major problem in unethically behaving, as the capture theory emphasizes. Poor crediting rating Agencies In relation to crediting agencies, the problem evolve when the crediting agencies fail to guide investors in giving proper information about Enron, as these crediting agencies fail to uncover to problem with the financial report of Enron. However, according to Aldrick (2002, Para.1-9), the only reason of the crediting agencies not identifying the problem was because Enron executives tricked the crediting agencies in being manipulative. Furthermore, the agencies outlined that the issue of Enron on the credibility of their business is in line with the operations, in terms of the company vending of ratings, reputation and integrity. Therefore, in the case of the crediting agencies, the problem lays on the company failing to foresee the financial report of Enron before rating Enron’s operat ions as it is crucial for investors in informative decision making.
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Close links with the government Enron has influence over the government since most of the government officials were being involved in the success of the bankruptcy of the firm. The problem is that when regulation capture theory was being used for candidates in the campaign, the government officials are being forced to consider the case of their representative sponsors (Fowler, 2002, Para.20-25). I n the case of Enron, as one of the candidates was being elected, Enron was venerable according to their expectations in terms of oil exploration and criticism from resistance of the environmentalist. Therefore, the policy changed of energy has become a problem to Enron as it has different motives all together in terms of their business environment, in becoming dominant in the market.
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