MFIN 202 Assignment 1

.docx

School

Koç University**We aren't endorsed by this school

Course

MFIN 202

Subject

Management

Date

Dec 18, 2024

Pages

Uploaded by SuperHumanButterfly6631

THE ENRON SCANDAL AND THE ETHICS OF FINANCEThe Enron Scandal, without a doubt, is one of the most shocking corporate scandals inhistory. It changed the financial paradigms. Although once it was one of the most valuablecorporations, Enron collapsed under the weight of the scandal. Behind the successful image ofthe company, there were accounting manipulations. Hence, this scandal highlights theimportance of ethical behavior in finance.All corporations aim to maximize value, as our book suggests, however, somecorporations might follow unethical practices in order to achieve higher values. Enron, in ourcase, is a perfect example of those companies. Firstly, Enron’s management, including ChiefExecutive Officer Jeffrey Skilling and Chief Financial Officer Andrew Fastow weredeliberately implementing the accounting manipulations and they were aware of the fact thatthe corporation’s profits are overstated. Moreover, the company’s auditing firm, ArthurAndersen, was a part of this fraud. Considering these, it can be said that the fraud had a top-down nature which made the fraud difficult to detect. In that regard, the Enron scandal alsohighlighted the importance of strict financial regulations and financial oversight byinstitutions.The Enron scandal brought attention to important ethical issues in the world offinance. It underlined the significance of transparency and accountability in financialreporting above all else. For companies to offer stakeholders and investors accurate andtrustworthy information, businesses must follow ethical accounting standards. The scandalalso highlighted the need for corporate governance. To stop executive misconduct, the boardof directors must have effective oversight, with independent and ethical members. The Enronscandal also highlighted the critical function of auditors in maintaining financial integrity.Arthur Andersen should have stuck to the accounting principles and made people aware of thefinancial manipulations done by Enron. In that regard, the ethical standards of auditing

companies must be practiced, in addition to their independence and early reporting of anyabnormalities. It also emphasized the necessity of ethical leadership in businesses. CEOs andother executives should promote a culture of transparency and accountability by putting thelong-term interests of their shareholders and employees ahead of their own short-term goals.The Enron case is a perfect example of where the executives put their self-interest above thecompany’s interests, resulting in a catastrophe where thousands of people lost their jobs.In conclusion, the Enron scandal continues to serve as a warning, raising awareness ofthe ethical issues that arise in the financial industry. It is an important reminder that actingunethically may have catastrophic impacts on people, businesses, and the overall economy. Toensure a more secure and prosperous future for everybody, society may strive to create afinancial environment based on trust, transparency, and ethical conduct by learning from themistakes of Enron.