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Assignment 3 Fraud in the AIS: Unraveling the Enron Scandal

A case study on the Enron scandal, examining accounting failures and fraud prevention measures.

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    Running Header: ASSIGNMENT 3: FRAUD IN THE AIS Assignment 3 : Fraud in the AIS Student: Instructor: Date: Analyze the accounting system failures that led to the collapse of Enron, with a focus on the role of third parties such as Arthur Andersen. Discuss the cultural and systemic issues within Enron that contributed to fraudulent practices, and explore the preventive measures that could have mitigated these failures. Your analysis should be supported by relevant examples and references. Word Count Requirement: 1500 - 2000 words.

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    ASSIGNMENT 3: FRAUD IN THE AIS 2 Accounting System Failures and Enron Introduction: The 1990s saw the United States appreciate phenomenal financial development. This would be driven to a great extent by the huge benefit of huge corporate elements and multinational combinations. At the tallness of this time of monetary dynamism, it did give the idea that these corporate elements were driving the charge toward another national thriving. Tragically, the decade instantly from that point would demonstrate a lot of this unbridled accomplishment to be fabricated and a great part of the benefit to be absolutely false. Broken bookkeeping practices would be uncovered as a most slippery offender as a pile of corporate embarrassments got to be clear in the mid 2000s. Positively, none of these bookkeeping outrages was entirely as unmistakable as the breakdown of Enron and its bookkeeping accomplice, Arthur Andersen . The occasions of 2002 would start the revealing of a universe of improper practices and would show the requirement for far more noteworthy straightforward, oversight and auth oritative intercession. This essay will discus here considers the accounting system at Enron and how this delivered a situation where fraud , theft and duplicity were a piece of the organization society. Accounting System Failures: The system failure that took into consideration the breakdown of Enron was neither specialized nor unplanned. They were unshakable, designed and inevitable1 . T he flaw in the accounting system was that it could be held prisoner by the voracity and aspiration of a center of degenerate administrators. As indicated by BBC News (2002), reporting at the season of the outrage's disclosure , “Enron lied about its profits and stands accused of a range of shady

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    ASSIGNMENT 3: FRAUD IN THE AIS 3 dealings, including concealing debts.” (BBC News, 1) According to these revelations, Enron’s executive leadership had conspired to falsify its economic performance in order to stoke higher stock values and embezzle massive sums of shareholder money. When the company’s straw house of false earnings co uld no more maintain its weight and the biggest vitality supplier in the country given way. Its shareholders pulled back their remaining ventures, the organization petitioned for Chapter 11 insolvency, and every one of that was left was a tangled legitimate wreckage for prosecutors to deal with. The financial harm of the Enron embarrassment was totally huge . According to the article by Iwata (2002), Enron “had $100 billion in annual revenue, suffered a $1 billion loss, restated $600 million in inflated profits and filed for bankruptcy restructuring. About 4,000 Enron employees were let go. Top Enron officials ran a vast web of partnership deals that misled Enron and investors, according to an Enron internal report.” (Iwata, p. 1) In many ways, the accounting system failures revolved almost entirely over the ability of leadership to manipulate and falsify performance. In other words, there was a willful subversion of accounting transparency. The great flaw in the accounting system would be its devastating vulnerability to subversion. What makes the Enron scandal so remarkable is that its perpetrators were able to conduct this massive accounting fraud in broad daylight, systemically and on a level where most personnel felt pressure to enjoy the spoils or be the subject of suspicion. As Bryce (2004) reports, “flowers, first - class airfare, first - class hotels, limousines, new computers, new Palm Pilots, new desks — Enron employees began to expect the best of everything, all the time.” (Bryce, p. 134) These expectations fed into the accounting system’s flimsy connection to reality. And because so many employees at every level of Enron’s operations came to enjoy the benefits of its

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