5115 Unit 2 Disc 3

Identify what you consider any conflicts of interest in the case of Enron and Arthur
Andersen.
Jeffrey Skilling worked as a CEO at Enron who promoted accounting swings and poor
financial reports to understate the company's assets and hide many of the billions of dollars
in debts of failed projects, and management did not properly audit.
Where a major external audit firm represented by Arthur Anderson was selected, while at
the same time providing audit and advisory services to Enron, as this was considered a
conflict of interest when the value of Enron's shares fell, Skilling left his position and sold his
shares. The next day, Sherwin Watkins warned Kenneth Lay, worried about the risks of a
financial scandal. However, he consulted the firm's law firm rather than an external,
independent firm. As expected, the in-house law firm declared Enron's accounting practices
to be legitimate, and this was another major conflict of interest (Reinemer,1979).
What could have been done to avoid the conflict of interest you identified?
Contacting external companies for auditing and legal advice often leads to knowledge of the
illegal financial practices of the Skilling company, and when Skilling left the company, it was
important to know the reasons for leaving him and what he left financially, so it was
important to exchange correct information between members of the board of directors.
How will you change the laws to correct the problems that emerged in the Enron and Arthur
Andersen case?
Commercial interest takes precedence over professional integrity. The major audit failure
makes the US government work harder to prevent auditors from providing consulting
services during the audit of the same company (conflict of interest). Where business interest
takes precedence over professional integrity.
So, finding a conflict of interest is difficult, and sometimes the association between
companies is indirect and complex, but laws must follow any multiple relationship and
ambiguous sharing between parts. (Davis,1993)
Find out how Enron and Arthur Andersen were encouraged to act ethically beyond direct
legal pressures?
The company that Enron worked for lacked ethical management as none of his unethical
practices were discovered, so the manager could make his decision freely and without
anyone knowing, outside of two conflict of interest occasions, managers can fire the people
responsible of this work and to change things. However, transparency was not part of
Company policy Unethical financial practices are not discouraged.
To what extent (if any) should sustainability concerns and issues be included in accounting
analyses?
The main reasons why companies perform sustainability and compliance efforts are the
environment, energy savings, reduced resource consumption, reduced pollution, reduced
waste, improved economy, increased revenue, reduced potential cost, corporate reputation,
and legal and regulatory data (US Clean Air Act, US Resource Conservation and Recovery Act,
US Clean Water Act) (Carson,1994). One reason is that concern about sustainability must be
accounted for with the benefits and drawbacks of long-term sustainability yields for
accounting analyses. Especially, the financial statements should contain a useful indicator of
sustainable strategy. Energy saving.
When (if ever) should organizational decisions with sustainability-related impacts and
significant associated cost-implications (savings or expenditures) be shared with
shareholders?
Recent studies confirm the trend of investment leaders to care about environmental, social,
and governance issues (ESG). Long term investors are increasing their interest in climate risk,
board quality, or cybersecurity in terms of how they impact financial value in a positive or a
negative way (Carson,1994).
**References:
· Reinemer, V. (1979). Stalking the Invisible Investor. Journal of Economic Issues, 13(2),
391–405. http://www.jstor.org/stable/4224815
· Davis, M. (1993). Conflict of Interest Revisited. Business & Professional Ethics
Journal, 12(4), 21–41. http://www.jstor.org/stable/27800924
· Carson, T. L. (1994). Conflicts of Interest. Journal of Business Ethics, 13(5), 387–
404. http://www.jstor.org/stable/25072542

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Identify what you consider any conflicts of interest in the case of Enron and Arthur

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