The Crisis of the Ethics of Audit Profession: Collapse of Enron Company and the Lessons Learned

DOI: 10.4236/oalib.1103205, PP. 1-18

Keywords: Ethics, Audit Profession, Collapse of Enron

Full-Text   Cite this paper   Add to My Lib

Abstract:

The aim of this study is to describe and analyze the reason of collapse of the biggest energy company, the American company Enron, which is considered one of the events that has a great effect on the profession of accounting and auditing. This study focuses in the ethics, which is considered as a preventer and a conservator of the occurrence of collapses and financial scandals. The descriptive analysis approach was adopted, which depended on the inductive methodology by inducting the studies and researches which aimed to explain and analyze the reasons of the collapse of Enron company and knowing the lessons learnt from it and the methods to avoid financial scandals like this. We are going to summarize some lessons that can be learnt to avoid the same fate of Enron and regain trust of the financial markets as well as both professions of accounting and auditing. This study is divided into an introduction and four parts and a conclusion. The results find that there are many reasons of the collapse of Enron company, the most important is, the administration of the company made inflation of the profits ostensibly up to billion dollars in the year before the company’s collapse. Moreover, the internal audit in the company failed in the ethical and financial aspects as a result of continuous deception, greed, bribery, speculation and fraud.

References

[1]	Al-Khaddash, H., Al Nawas, R. and Ramadan, A. (2013) Factors Affecting the Quality of Auditing: The Case of Jordanian Commercial Banks. International Journal of Business and Social Science, 4, No. 11.
[2]	Mansouri, A., Pirayesh, R. and Salehi, M. (2009) Audit Competence and Audit Quality: Case in Emerging Economy. International Journal of Business and Management, 4, 17.  https://doi.org/10.5539/ijbm.v4n2p17
[3]	Al-Moataz, E. (2008) The Ethics of Audit Profession and People Who Deal with: Enron Collapse and Learnt Lessons. King Abdulaziz University Journal: Economics and Management, 22, 293-257.
[4]	Kaveh. M., Khalili, M., Ghorbani, A. and Soroush, M. (2014) Professional Ethics in Accounting and Auditing. World Essays Journal, 1, 85-93.
[5]	Passu, A.M. (2012) Theoretical Considerations on the Influence of Ethical Principles on Audit Quality, between Objectivity and Responsibility of the Accounting Profession. CES Working Papers, 4, 795-808.
[6]	Shaw, W.H. (2008) Business Ethics. 6th Edition, Thompso Wadsworth, Belmont, CA.
[7]	Al Qtaish, H.F., Baker, A.M. and Othman, O.H. (2014) The Ethical Rules of Auditing and the Impact of Compliance with the Ethical Rules on Auditing Quality. International Journal of Research and Reviews in Applied Sciences, 18, 1.
[8]	http://www.e-quran.com/language/english /English 4/default.html
[9]	http://www.dar-us-salam.com/TheNobleQuran
[10]	Jamieson, D. and Gellermann, W. (2014) Values, Ethics, and OD Practice. The NTL handbook of Organization Development and Change, 45-65.  https://doi.org/10.1002/9781118836170.ch3
[11]	Rong, S.M.H. (2011) Ethical Consciousness in Auditing: A Comparison of Students and Employees.
[12]	Pavel, T. and Encontro, M. (2012) The Enron Scandal. Chalmers University of Technology Financial Risk, Goteborg.
[13]	Robinson, M. (2012) Enron, Study Guide. TimeLine Theatre Company. http://fliphtml5.com/ltyr/abvv/basic
[14]	Benston, G.J. and Hartgraves, A.L. (2002) Enron: What Happened and What We Can Learn From It. Journal of Accounting and Public Policy, 21, 105-127. https://doi.org/10.1016/S0278-4254(02)00042-X
[15]	Pha, A. (2010) Enron: Capitalism in a Nutshell. New Age Publishers, Australia.
[16]	Oktik, S., Karaosmanoglu, K., Eltez, A. and Benli, T. (2015) Günes-Elektrik Enerjisi Donüsüm Sistemlerinin Anket Degerlendirmeleri.
[17]	Gordon, J.N. (2002) What Enron Means for the Management and Control of the Modern Business Corporation: Some Initial Reflections. The University of Chicago Law Review, 69, 1233-1250.  https://doi.org/10.2307/1600646
[18]	Benli, T., Yildiray, K., Karaosmanoglu, K. and Hiz, G. (2013) A Field Study on the Determination of the Credit Card Users’ Awareness of the Products/Services Offered with Credit Cards: Turkey Case. International Journal of Business and Management, 8, 13-29.
[19]	Jennings, M.M. (2002) Where Was the Audit Committee? Internal Auditing, 17, 42-45.
[20]	Tonge, A., Greer, L. and Lawton, A. (2003) The Enron Story: You Can Fool Some of the People Some of the Time. Business Ethics: A European Review, 12, 4-22.  https://doi.org/10.1111/1467-8608.00301
[21]	Moncarz, E.S., Moncarz, R., Cabello, A. and Moncarz, B. (2006) The Rise and Collapse of Enron: Financial Innovation, Errors and Lessons. Contaduría y Administración, 17-37.
[22]	Bryce, R. (2003) Pipe Dreams: Greed, Ego, and the Death of Enron. Public Affairs, New York.
[23]	Ulusoy, T. (2010) IMKB Endeks Ongorusu Icin Ileri Beslemeli Ag Mimarisine Sahip Yapay Sinir Agi Modellemesi, Uluslararasi Iktisadive IdariIncelemeler Dergisi, Sayi, 5, 21-40.
[24]	Erdogan, M. (2012) VUK-TFRS Gecis Sürecinde üniversitelerde Denetim Egitimve Ogretim Dongüsü Onerisive Web Tabanli Bir Yazilimile Denetim Uygulamasi. Dünya Sürekli Denetimve Raporlama Sempozyumu, Malatya, 3-4 May 2012, 24.
[25]	G20/OECD Principles of Corporate Governance OECD Report to G20 Finance Ministers and Central Bank Governors September 2015.
[26]	Mcclain, G. (2013) The Impact of Product Differentiation on the Collapse of Arthur Andersen. The Journal of Business Inquiry, 12, 1-14.
[27]	Coates, J.C. (2007) The Goals and Promise of the Sarbanes-Oxley Act. The Journal of Economic Perspectives, 21, 91-116. https://doi.org/10.1257/jep.21.1.91
[28]	Shakespeare, C. (2008) Sarbanes-Oxley Act of 2002 Give Years on: What Have We Learned. Journal of Business & Technology Law, 3, 333-357.
[29]	Saglar, J. and Kandemir, C. (2007) Enron Olayi: Muhasebe Hilesi mi, Sistem Hatasimi? Cukurova üniversitesi Iktisadi ve Idari Bilimler Fakültesi Dergisi, 11, 20-39.
[30]	Zulauf, L. and Grierson, P. (2011) Enron: The Good, the Bad, the Lessons. International Business & Economics Research Journal, 1, 49-68. https://doi.org/10.19030/iber.v1i11.3998
[31]	Dharan, B.G. and Bufkins, W.R. (2008) Red Flags in Enron’s Reporting of Revenues and Key Financial Measures.
[32]	Benli, T. and Kizgin, Y. (2013) The Examining of GSM Operators’ Customer Complaint Management (CCM) Applications in Turkey with Discriminant Analysis. International Journal of Business and Management, 8, 1-17.
[33]	Erdogan, M. (2002) Finansal Muhasebe (Yoneticilerin Karar Verme Araci Olarak). Beta Basin Yayim Dagitim A.., Istanbul.
[34]	Felo, A.J., Mahoney, D.P. and Solieri, S.A. (2002) New Accountability for Corporate Audit Committees. Strategic Finance, 83, 52-56.
[35]	Gwarzo, M. (2015) Corporate Governance and Stock Market Development. Bayero University Kano, Securities and Exchange Commission, Director General, Secnigeria, Abuja.
[36]	Ulusoy, T. (2011) Financial Power Analysis of Countries: Transmitters (Adsorbents), Setters and Unresistants. African Journal of Business Management, 5, 9087-9105.

Full-Text