to successfully pursue their action for damages against the directors of Fidelity. Lord Bridge of Harwich said that the auditor owed a duty of care if he/she was fully aware of the nature of the transaction and knew it was likely the plaintiff would rely on it in deciding whether to engage in the transaction. Thus‚ auditors owe a duty of care to the company’s shareholders as a group and not individual shareholders in order provide accurate financial information especially when investors are reliant
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Running head: CASE STUDIES: ENRON’S FALL AND TYCO INTERNATIONAL’S LEADERSHIP CRISIS Case Studies: Enron’s Fall and Tyco International’s Leadership Crisis Grand Canyon University BUS 604 November 4‚ 2009 Case Study: Enron’s Fall and Tyco International’s Leadership Crisis The tight Federal regulations now governing businesses and their accounting practices came about because one corporation‚ Enron‚ took risks their company could not withstand without taking some rather extreme measures in
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it for booking potential profits on future projects that Enron was working on. For example‚ Enron once signed a contract with Blockbuster for $110 million‚ but Blockbuster withdrew from the contract due to the new stigma surrounding Enron and how Enron’s systems weren’t efficient enough for Blockbuster. Enron wasn’t paid by Blockbuster because the contract fell through‚ but they still booked a profit of $55 million. Using mark to market accounting‚ Enron is now “Cooking their books”‚ meaning they
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profits‚ hide losses‚ and to keep financing off Enron’s consolidated financial statements. Also‚ AA failed to abide by the Generally Accepted Accounting Principle (GAAP). In addition‚ AA did not advise Enron’s audit committee that their CFO and his colleagues were involved in significant conflict if interest situations. They did not advise Enron’s Audit Committee about the inadequacy of their policies and internal controls. Also‚ many of the transactions between Enron and the SPEs were not in the interest
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several years‚ including such areas as Internet bandwidth‚ risk management‚ and weather derivatives (a type of weather insurance for seasonal businesses). The Enron fraud case is extremely complex. Some say Enron’s demise is rooted in the fact that in 1992‚ Jeff Skilling‚ then president of Enron’s trading operations‚ convinced federal regulators to permit Enron to use an accounting method known as "mark to market." This was a technique that was previously only used by brokerage and trading companies
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innovative new ideas. His revolutionary idea for Enron was to ‘create a gas bank in which Enron would buy gas from a network of suppliers and sell to a network of consumers‚ contractually guaranteeing both the supply and the price‚ charging fees for the transactions and assuming the associated risks’ Lay impressed with Skillings brilliance‚ created a separate division for him to run‚ Enron Finance Corp. Due to their market dominance‚ Enron could predict the future prices with great accuracy and where therefore
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was a statement from Enron’s Power Committee and it appears they were placing blame on the Andersen firm. They were quoted as saying‚ "… evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron ’s financial statements‚ or its obligation to bring to the attention of Enron ’s Board (or the Audit and Compliance Committee) concerns about Enron ’s internal contracts over the related-party transactions" (“Enron Scandal”). After
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Many have heard of the Enron Scandal of 2001. A scandal‚ by definition‚ is an event that involves allegations of wrongdoing‚ disgrace‚ or moral outrage. In other words‚ a scandal is caused by shortcomings in ethics. Enron’s Ken Lay‚ Jeffrey Skilling and Andrew Fastow each engaged in unethical practices in their various leadership positions at Enron and caused thousands of Enron employees and investors to lose their savings. (Smartest) Kenneth Lay showed all the signs of a transformational
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were able to bring transformation to Enron. They created a multi-billion dollar Wall Street celebrity out of an electricity and gas company. There was an unusual growth spurt in Enron’s profit of about $69 billion from 1998 to 2000. This caught the attention of an anonymous bankruptcy examiner and it was suggested that Enron’s net income and cash flow had been compromised. The Wall Street celebrity corporation was caught lying and in debt. They lied about their income and cash flow in extravagant ways
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was able to avoid consolidating these special purpose entities. As a result‚ Enron’s balance sheet understated its liabilities and overstated its equity and its earnings. In addition to the accounting failures‚ Enron provided only minimal disclosure on its relations with the special purpose entities. The company represented to investors that it had hedged downside risk in its own illiquid investments through transactions with special purpose entities. 2.1 Truthfulness The lack of truthfulness
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