The Enron and WorldCom Scandals
Athena Jackson
March 2, 2014
ACC/260
Debra Peterson
The Enron and WorldCom Scandals
1. Which segment of its operations got Enron into difficulties?
The few things in the operation that got Enron into difficulties are:
A. The fact that Kopper was an employee of Enron, and was appointed to Fastow
B. Enron was also incorrectly booking revenue for services that had not been done yet
C. Enron’s stocks were paid by promissory notes and
D. not cash.
E. The 11 million dollars that was supposed to have been invested, never was
3. Did Enron’s directors understand how profits were being made in this segment? Why or why not?
No, the Enron directors did not understand how profits were being made because all that was kept away from them. If they had understood how profits were being made they would have taken some actions.
5 Ken Lay was the chair of the board and the CEO for much of the time. How did this probably contribute to the lack of proper governance?
Ken Lay was the chair of the board and the CEO for most of the time. His lack of making ethical decisions, and allowing all the misdealing to take place contributed to the lack of proper governance. He should have seen that the revenues where overstated.
6. What aspects of the Enron governance system failed to work properly, and why?
The aspects of the Enron governance system failed to work properly because of the governance failure at the Board level. There was too much trust in management, dishonesty in management, and auditor deficiencies.
9. Identify conflicts of interests in:
• SPE activities
• Arthur Andersen’s activities
• Executive activities
Enron used SPE activities to hide debt and to overstate equity and earnings, and used mark-to-market accounting to book future revenues as current revenue.
Arthur Andersen’s activities were that did not report all of the earnings and helped Enron cover up losses that caused a conflict of interest.
The executive activities by the Board showed numerous failures of duty. The Board saw but ignored numerous questionable practices by Enron management to the loss of Enron shareholders, employees and business associates and contributed to the company's downfall.
