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Enron:
Misrepresentation & effects:
1) conflict of interest between BOD and senior managers causes financial rewards to be unfair
2) false audit report released by arthur andersen to enron causes fraudulent in financial reporting
3) wrongly term used for revenue recognition causes revenue to be overstated.

Who benefits & misled
1) benefits: high net income & stocks to senior managers enron
2) misled: investors & general public are harmed

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The executive have involve themselves in committing an illegal and unethical behavior for their own benefit. Disregarding their employees and shareholders had lead to the company’s downfall.

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Hide and transfer their liability to other company, cheat that they earn profit. The shareholder, employee of enron, Arthur Anderson are being misled

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To build trustwortiness between  employee, employer and its clients so they can work together in a safe working environment.

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Misstatement - false financial report by Authur Ardesen (overvalued financial report)
disadvantage : investors of Enron

Benefit - managements of Enron

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Benefited : FASB substantially raised its levels of ethical conduct. Company boards of directors became more independent, monitoring the audit companies, and quickly replacing poor managers.
Misled: The company's shareholders and investors

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Misrepresentation regarding premature recognition of revenue using ‘prepays’. This refers to overstating the revenue and understating their expenses and this benefitted senior management that had lucrative stock option.

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Misrepresentation in the non audit service that affect the audit quality. Partner that share the profit benefit from it. The employees of arthur anderson lost their job when partnership collapsed

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Premature recognition of revenue using prepayments which lead to overstatement of revenue. The net income and stock increase which benefit senior management that had lucrative stock options.

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Misreprsentation- culture focused revenue production which benefitted all the partners who shared in the profits

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Enron was benefit because it failed to provide financial statement to investors and investors was misled by the performance of Enron

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Arthur Anderson which had falsely audited Enron’s financial statements which had resulted in fraudulent of reporting of financial statements. The benefited party are the senior management of Enron and Arthur’s partners. The party who was being mislead was the public and investors.

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Mark Koenig, the former head of investor relations for Enron Corp., testified in court Thursday that he went along with putting out false and misleading information about the company's business and finances to keep his job and to maintain the company's high valuation.

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in this case, the BOD benefits from the misrepresentation and the shareholders, employees and other investors are being misled.

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Q1. Many cases of financial malfeasance involve misrepresentation to mislead board of directors and/or investors. Identify the instances of misrepresentation in the Enron, Arthur Andersen, and Subprime cases discussed in this chapter. Who was to benefit, who was being misled?

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Q1. Many cases of financial malfeasance involve misrepresentation to mislead board of directors and/or investors. Identify the instances of misrepresentation in the Enron, Arthur Andersen, and Subprime cases discussed in this chapter. Who was to benefit, who was being misled?

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Misstement- false financial statements audited by Arthur Andersen

Who benefitted- senior management at Enron and partners at Arthur Andersen

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There were conflict of interest and false financial statement. This was exploited by the senior management and resulted in changes in stock prices due to the lucrative stock options.

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Misrepresentation regarding false financial statements which results in fraudulent financial reporting. This then benefits the board members

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Enron is the one who was to benefit because the fraud resulted in increasing the net income and stocks. Then it benefited the senior management that have lucrative stock options.

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They misrepresent their financial statement and price share earning that depict their true value worth of the company.
A major player in the Enron scandal was Enron's accounting firm Arthur Andersen LLP and partner David B. Duncan, who oversaw Enron's accounts.

The one that being mislead in this case is the public as they mispresent their price share earning.

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1. Misrepresentation
- Culture focused on revenue production
- Removal of Carl Bass, quality control partner, from providing oversight to Enron audit
- Non-audit services

2. Who's benefited?
- In short-run, all parties who shared in the profits derived from providing lucrative non-audit services

3. Who's misled
- Investors
- Regulators
- Employees
- General public

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1. False financial statement audited
-caused a fraudulent financial statement
-management and partners of Enron who benefited
-investors and employees are who being being misled by the fraud

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It is about misrepresentation of financial statement by Enron & its audit firm. They benefited from these fraudulent activities, leaving their bank at disadvantage.

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enron benefited from the compromised audit procedure.
the shareholders of enron affected from the misrepresentation.

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Q2. It is argued by many professionals and academicians that not only the accountants and auditors have to maintained a high degree of ethical behavior but also it is very essential for the clients to be ethical too. Why?

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Q2. It is argued by many professionals and academicians that not only the accountants and auditors have to maintained a high degree of ethical behavior but also it is very essential for the clients to be ethical too. Why?