Enron accounting scandal Essay Example | Topics and Well Written Essays - 1250 words

Enron accounting scandal - Essay Example It made revolutionary changes in the trading markets of energy which has opened the door for new power traders and suppliers. It also tailored a nationwide energy-trading network by engaging in electricity and natural gas contracts that reflects the cost of delivery to a specific destination. By year 1999, the company adapted an internet-based system as Enron Online was launched. In 2001, it reported its executed trades on-line averaging to $2.5 billion a day. Having posted a 57 per cent increase in sales between 1996 and 2000, the company was considered as one of the most successful companies in the world. It controlled, 25 per cent of the â€Å"over the counter† energy-trading market or the trades conducted party-to-party and not over an exchange like the New York Mercantile Exchange. In addition, in the last week of 2000, its shares hit a 52-week high of $84.87 per share (www.mbaknol.com, 2011). No doubt that among the major player that had a major impact in the gigantic co llapse that turned out to be Enron is the accounting firm that handled its auditing. This is Arthur Andersen which garnered ire and revulsion following the events of the scandal. There was the unending debacle over the alleged shredding of important documents moments before they were subjected to an investigation. This was to cover-up the paper trail on the corruption that went on within the company. In 2002, the Houston Court found the company guilty of obstructing justice that led to the lost of over $60 billion by investors. The jury found it guilty on account of an alteration of a company memorandum that was connected with the revelation of the income of Enron. The judgment emphasized the need of accounting firms to monitor corporations and not just to stick with balancing accounts (Thomas, 2002). Though the entire firm had been indicted and found guilty, the most prominent figure that contributed to the catastrophe is their Chicago lawyer Nancy Temple who ordered David Duncan t o erase her name from a memo when they already knew the Securities and Exchange Commission was after them. The subject of the memo was on a $1 billion loss of Enron that Temple disagrees with. The whole debacle has placed the entire firm into jeopardy as they lost one-third of their 2,300 clients whereas only 5,000 out of a former 26,000 of their United States employees opted to remain with the company. The editor of Bowman’s Accounting Report has been quoted describing â€Å"Arthur Andersen is dead. Once the indictment was handed down, clients started jumping faster than they did off the Titanic† (Thomas, 2002). All these turn of events had led to the realization that there has been transcendence among accounting firms to be more cautious and transparent of their dealings with client companies. This judgment over Arthur Andersen only leads as basis to the public conclusion that there was something awfully wrong with the way Enron conducted its business. The non-disclo sure of facts that the company is in ruins which led investors to believe they are putting their money on a viable company when in fact they are not. This case served only as fuel to the public clamor to delve into the culpability of Enron executives and to hold them liable and to make them responsible to the aftermath of the company’s mess. There have been a number of opinions that pertain to the whole situation, some even uncalled for and downright degrading such as the reference to Andersen employees as Androids (Thomas, 2002). T

Oppurtunity cost on economics Essay Example | Topics and Well Written Essays - 1000 words

Oppurtunity cost on economics - Essay Example According to Varian (1999, p327): â€Å"In the expression for cost we should be sure to include all the factors of production used by the firm, valued at their market price. Usually this is pretty obvious, but in cases where the firm is owned and operated by the same individual, it is possible to forget about some of the factors.† Varian (1999, p327) went on to give the following example which will enable a better understanding of opportunity costs: â€Å"If an individual works in his own firm, then his labor is an input and it should be counted as part of the costs. His wage rate is simply the market price of his labor – what he would be getting if he sold his labor on the open market. Similarly, if a farmer owns some land and uses it in his production, that land should be valued at its market value for purposes of computing the economic costs. We have seen that economic costs like these are often referred to as opportunity costs. The name comes from the idea that if you are using your labor, for example, in one application, you forgo the opportunity of employing it elsewhere. Therefore, those lost wages are part of the cost of production. Similarly, with the land example: the farmer has the opportunity of renting his land to someone else, but he chooses to forgo that rental income in favor of renting it to himself. The lost rents are part of the opportunity cost of his production. The economic definition of profits re quires that we value all inputs at their opportunity costs.† When firms are making profits in an industry, the industry becomes attractive to prospective investors. The costs of firms should include all costs incurred at their market price. This market price is the opportunity cost. â€Å"After all, the cost curve is supposed to include the cost of all factors necessary to produce output, measured at their market