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1、CaseStudy:Enron,sfinancialfraudcasePreparedby:xxxxxxxxxxxxxxx1.eadershipEthicsSeminar-BU.131.601xx/xx/xxxxTableofContentsAbstract3Introduction3Background4Findings5Recommendations6Conclusion7AbstractEnronsfinancialfraudcaseisastudyofthecompanysmanagementandexternalauditinstitutionsinfringingsharehold
2、ersthroughcomplexfraudmeansundertheconditionofasymmetricinformation.Thefraudmeansofthiscaseisverycomplexandhidden,andthefraudprocessinvolvesmanylevelsandanglesofmoralissues.Thebreakthroughofprofessionalstandardsandmoralbottomlineofmanagersandauditpractitionershasbecomethemainthemeofthiscase.Thispape
3、ranalyzestheprocessandcharacteristicsofthesepeople,sparticipationinfraud,analyzestheharmofthesebehaviorsinthecase,andputsforwardsometargetedsuggestionstohelplistedcompaniesimprovetheseproblems.IntroductionEnronsfinancialfraudcaseisaresearchonthefinancialsystem,informationdisclosurestandard,externala
4、uditsystemandrelatedpartytransactionsystemoflistedcompanies.InOctober2001,Enronreleaseditsthirdquarterfinancialstatementsandannouncedalossof$618million.OnNovember8,EnronadmittedtotheU.S.stockexchangethatithadfalselyincreaseditsprofitby$586millionandconcealedalargeamountofdebtbetween1997and2001.Enron
5、,sfalsefinancialinfbnationmadeEnronssharepricefallrapidlyandeventuallygobankrupt.TheshareholdersofEnronsufferedheavylosses.TheUSSecuritiesRegulatoryCommission,governmentregulatorsandthemediaallparticipatedinandexposedtheinvestigationprocessofthecase.Therearefourmainthemesaroundthefinancialfraudincid
6、entofEnroncompany,whichprovethatthereareinappropriatepracticesintheoperationprocessofEnroncompany.ThefirstthemeisthatEnronunreasonablyusedtheconventionthatspecialpurposeentitieswithspecialconditionsareallowedtobeexcludedfromthefinancialstatements.Byexcludingseveralspecialpurposeentitiesthatshouldber
7、eflectedintheconsolidatedstatementsfromthefinancialstatements,Enroninflatedprofitsbynearly500millionUSdollarsandconcealedhundredsofmillionsofusdollarsOfliabilities.Thesecondthemeisthatthepersonneloflistedcompaniesandnonlistedsubsidiariesarenotindependent,andevenpart-timephenomenonisserious.Companies
8、avoidtaxthroughavarietyofrelatedtransactions.ThethirdthemeisthatastheexternalauditorganizationofEnron,Anxindacompanyundertakestheinternalaudit,consultingandotherworkofthecompany,whichcannotguaranteetheindependenceoftheexternalauditorganization.Thefourththemeistoconcealtheactualsituationthataffectsth
9、ecompany,soperation,withouttimelydisclosure.Basedontheabovefourthemes,thispaperarguesthatthereareavarietyofmoralandprofessionalconductchallengesinEnronsfinancialfraudcases.Thebasicmoralconceptthatcansupportthedevelopmentofmodernsocietyandeconomyshouldbethespiritofcontract(Foot,1983).Inthemodernenter
10、prisesystemofseparationofownershipandmanagement,theoperatorshouldabidebythecontractbetweentheenterpriseandthemanagertoprotecttheinterestsofshareholders.Managersrealizetheinternalcontroloftheenterprisebyusingtheadvantagesofinformationasymmetryandenterprisemanagementpower,whichwillleadtohugelossesfort
11、heownersoftheenterpriseandultimatelyhinderthedevelopmentofsocialandeconomicactivities(Daniel,2008).BackgroundEnronwasfoundedinHoustonin1985.Itwasonceoneofthemostsuccessfulnaturalgascompaniesintheworld.ThehighestsharepriceofEnronreached$90.56.TheexposureoftheincidentbeganonOctober16,2001.Enronsuddenl
12、yannouncedalossof$618millioninitsthirdquarterfinancialstatements.OnOctober22,anarticlewaspublishedontheUSstreetwebsite,inwhichitwaspointedoutthatEnronborrowed3.4billionUSdollarsthroughtwoaffiliatedtrustfundcompanies,whichledtotheinvestigationofEnronbytheUSstockexchange.Underthegreatpressureofpublico
13、pinionandgovernmentregulatoryauthorities,Enronadmittedthatithadinflatedprofitsof$586millionandconcealedalargeamountofdebtinthefiveyearsfrom1997to2001,anditssharepricefellfrom$80to$2.ThecompanyfiledforbankruptcyonDecember2.AftertheEnronincident,theAmericanStockExchangerevisedthesecuritiestradingsyste
14、moflistedcompanies,strengthenedtheintegrityanddiligenceobligationsofmanagers,requiredthecompany,sinformationdisclosuretobecomplete,timelyandtrue,andrequiredtheindependenceofexternalauditinstitutions.Inthiscase,manystakeholdersofthecompanysufferedheavylosses.Amongthem,Enron,sshareholderswerethemostaf
15、fected,andtheirwealthimmediatelyshrank.AstheexternalauditorganizationofEnron,thecredibilityofthecompanyhasbeengreatlyreduced,andthepersonnelinvolvedinfraudhavebeenpunished.TheEnronincidentalsoraiseddoubtsabouttheregulatorycapacityoftheU.S.stockexchange,andinvestorsalsoraiseddoubtsaboutthestockexchan
16、geandotherlistedcompanies.FindingsThemoralissueshererelatetothefourthemesintheintroduction.Enronborrowedalotofmoneythroughthewayofstockfinancingthroughaffiliatedtrustcompanies,andexcludedthetwocompaniesfromthecompanysconsolidatedstatements.Thecompanytakesadvantageofthesystemthatthelimitedliabilitycompanycanbeexemptedfromcorporateincometaxandevadestaxthroughrelatedtransactionswithitssubsidiaries.Anxindacompanycontinuestoundertaketheinternal
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