Ethical values are essential to the progress of all individuals and of any nation. Ethical values are crucial to the functioning of all business in general and society as a whole. Business and society depend on individuals making personal ethical decisions that are fundamental to responsible business operations and to an orderly society. "The purpose of ethics in accounting and business is to direct business men and women to abide by a code of conduct that facilities public confidences in their product and services" (Dr. Smith, L Murphy). The accounting profession has a long history of contributions to the efficient functioning of business operations, the capital market system and the economy in general. In the wake of corporate scandals and a struggling world economy, we look back at the accounting scandal at Enron, from an ethical perspective, the company which the media portrayed was the last straw that broke the camel's back. Enron was a large energy, commodities and services company, marketing electricity and natural gas, and providing financial and risk management services around the world (Cunningham, Lawrence 2002). Enron Corporation was created in 1985, shortly after the federal deregulation of natural gas in North America. Enron was formed by the merger of two natural-gas pipeline companies, Houston Natural Gas, one based in Houston, and the other in Nebraska, InterNorth (Dobson, John 2002). The merged company owned 37,000 miles of intra- and interstate pipelines for transporting natural gas between producers and utilities. The complex industrial structure of Enron was vast and only understood by a few people outside of Enron at the time of its filing for bankruptcy in December 2001. There was no clear picture or complete information as to the true levels of its assets, liabilities and offbalance-sheet positions (Cornford, Andrew, 2002). This was a far cry from the firm which, in the 1980s, specialized in the provision of natural gas pipelines and related services (Cornford, Andrew, 2002). From these humble origins, Enron expanded relentlessly into trading activities in more 1,800 products or contracts and thirteen currencies which included bandwidth, pulp and paper, and contracts such as weather and credit derivatives (Cornford, Andrew, 2002). It was in connection with expansion into trading that Enron engaged in increasingly aggressive and creative accounting (Cornford, Andrew, 2002). The core of the Enron debacle are said to be accounting chicanery related to off-balance sheet financing, related party transactions and colossal failures of board oversight (Cunningham, Lawrence 2002). These accounting, corporate and auditing issues included the use of complex but apparently compliant accounting rules to mask or defer recognition of liabilities and losses; the development and sale by investment banks of complex accounting-driven structures and products to assist corporations to hide losses and liabilities, and thereby improve their published financial condition and credit ratings; and the introduction of highly leveraged employee stock option plans (Travis, Anthony 2002). It became clear in the SEC investigation that Enron had failed during the preceding four years to make proper disclosure concerning various “related party transactions” and to properly account for “off-balance sheet” transactions (Cunningham, Lawrence 2002). This resulted with twenty percent of Enron’s shareholders’ equity wiped out–a total of $2.2 billion. Enron’s external auditor was Arthur Andersen, which also provided the firm with extensive internal auditing and consulting services. In light of Enron's bankruptcy filing and following SEC investigation, Arthur Andersen, auditor and provider of consultancy
