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Essay / Research Paper Abstract
A 4 page paper discussing the ethical failures associated with Enron's collapse. There were many problems at Enron, but the largest and most devastating lay with its use of special purpose entities (SPEs). Enron and its auditor, Arthur Andersen, abandoned ethical behavior with equal enthusiasm. Bibliography lists 4 sources.
Page Count:
4 pages (~225 words per page)
File: CC6_KSacctEnronEth.rtf
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Unformatted sample text from the term paper:
time that Enron began establishing its several special-purpose entities (SPEs) its overt purpose was to build for the long-term future without adversely affecting the short-term balance sheet and by extension,
investor confidence and Enrons market capitalization. It was undertaking some projects that required intense capital outlay and that it believed would post pleasing returns in the future. In
the meantime, however, the capital requirements were such that had Enron included them on its balance sheet, then it risked either dilution of future profits or its credit rating because
of the great deal of debt that Enron would need to finance these projects in the early years. In the beginning, Enrons actions were legal, ethical and appropriate.
Greed soon overtook common sense and any former commitment to ethical reporting, leading to the companys downfall and decimation of shareholders value. Goals of the SPEs
The accounting rules that existed at the time allowed Enron to establish SPEs that would assume the debt load of the functions for which they were formed
and allow Enron to avoid including the debt attributable to them on its own balance sheet (FASB proposes SPE guidance). The projects were not expected to be profitable for
some time; keeping them off Enrons balance sheet avoided the situation in which Enron would have to list the debt without any profit being associated with it.
The Enron-specific problem arose when Enron did not consolidate its SPEs within an acceptable period of time. This was the fault of Arthur Andersen, Enrons
auditing company. It should not have allowed Enron to extend its use of older SPEs without at some point consolidating them into its own balance sheet. FASB rules
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