Enron Accounting Ethics

Topics: Enron, Enron scandal, Accounting scandals Pages: 8 (2478 words) Published: September 26, 2008
To a large extent, the accounting profession is self-regulated through various professional associations rather than being regulated by the government. The AICPA, the IMA, and the IIA have internal means to enforce the codes of ethics. Furthermore, the professional organizations for CPAs in each state, known as state societies of CPAs, have mechanisms for enforcing their codes of ethics, which are usually very similar to the AICPA Code. Violations of ethical standards can lead to a person's being publicly expelled from the professional organization. Because of the extreme importance of a professional accountant's reputation, expulsion is a strong disciplinary measure. However, ethical violations can lead to even more adverse consequences for CPAs because of state and federal laws. The state government issues a CPA's license to practice, usually through an organization known as the state board of accountancy. Since state laws governing the practice of accountancy typically include important parts of the AICPA Code, the Code thus gains legal enforceability. Consequently, ethical violations can result in the state's revoking a CPA's license to practice on a temporary or even permanent basis. Because a licensed CPA is also likely to belong to the AICPA and the state society of CPAs, investigations of ethics violations may be carried out jointly by the AICPA, the state society, and the state board of accountancy. CPAs in public practice who audit the financial statements of public corporations are subject to federal securities laws and regulations, including the Securities Exchange Act of 1934. The Securities and Exchange Commission (SEC), which administers these laws, has broad powers to regulate corporations that sell their stock to the public. One important SEC requirement is that these corporations' financial statements be audited by an independent CPA. The SEC has the authority to establish and enforce auditing standards and procedures, including what constitutes independence for a CPA. The SEC has largely delegated standard setting to the private sector but retains oversight and enforcement responsibilities. In 1998 the SEC and the AICPA jointly announced the creation of the Independence Standards Board (ISB), a private-sector body whose mission is to improve auditor independence standards. In announcing the formation of the ISB, the SEC reaffirmed the crucial importance of the CPA's independence: "[M]aintaining the independence of auditors of financial statements … is crucial to the credibility of financial reporting and, in turn, to the capital formation process"


Enron Creditors Recovery Corp. ("ECRC") is the new name for Enron Corp. After Enron's Plan of Reorganization was approved by the United States Bankruptcy Court for the Southern District of New York, the new board of directors decided to change the name of Enron Corp. to reflect the current corporate purpose. ECRC's sole mission is to reorganize and liquidate certain of the operations and assets of the "pre-bankruptcy" Enron for the benefit of creditors. Enron's bankruptcy in 2001 is one of the largest and most complex bankruptcies in U.S. history. In November 2004, Enron emerged from bankruptcy and the company began its mission of reorganizing and distributing assets to its creditors. In connection with Enron’s emergence from bankruptcy in November 2004, a new board of directors was appointed, and they adopted this mandate: obtain the highest value from the company's remaining assets and distribute the proceeds to the company's creditors. As part of its efforts, ECRC has successfully undertaken legal action to hold responsible the major financial institutions that it contends assisted the pre-bankruptcy Enron deceive the public. Those legal efforts have, to date, resulted in settlements of almost $2 billion in cash. Additionally, as part of these settlements, the defendants have agreed not to...
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