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Accounting Essay

1648 words - 7 pages

The Demise of Enron
university of phoenix

July 09, 2012

The Demise of Enron

When the issues of business practices, regulation, and ethics are raised in the business world, Enron has frequently finds itself as the flagship example of irresponsibility, and intrinsic fraud. In retrospect, it is clear that Enron lacked a moral compass from the top down. In terms of organizational-behavior theories, these traits manifested themselves as a result of their corporate cognation, and organizational culture. Enrons biggest lack of business ethics was in its accounting. The deeply rooted accounting problem exposed by Enron's failure was the weak ...view middle of the document...

Although derivatives made appearances in the course of the governance failures, they played no essential role. The rule for some time has been that sponsors of an SPE need not consolidate it so long as outside investors contribute a majority of its capital and that investment constitutes at least 3 percent of the SPE's assets. Leaving aside the fact that Enron appears to have misled its auditor, Andersen, about the amount of outside investments in SPEs (thus wrongfully avoiding consolidation),
Source:Enron. (n.d.). Isda. Retrieved July 5, 2012, from EnronFinal4121.pdf

Cognation Theory:
What a cognitive theorist will say to an employer would be along the lines of the idea that the capacity of your employees to comprehend and/or be cognizant of what is happening both in their organization in particular and in the world as a whole, can be utilized to create theories having to do with organizational behaviors. There are some social theories that can also go a far way with helping employers with respect to organizational behaviors. These include the Social Cognitive Theory developed by Albert Bandura in the early 1960s, and the Social Learning Theory that was developed in the early 1940s by J Dollard and N. E. Miller. These social theorists postulate that we gain knowledge by looking at what is done by others. Additionally, that are thought processes are essential to an employers ability to understanding the different personalities of your employees. It is the suggestion of the Social Cognitive Theory, that you can get a clear comprehension of organizational behavior via your look at the leaders, other employees, as well as their tasks within the organization. This will also go a far way in figuring out if they possess the ability they need to achieve a goal.
Source :Cognation. (n.d.). Organizational behavior theories. Retrieved July 6, 2012, from
By this definition of cognation theory, much insight can be made to the operation of Enron. Because so many people at Enron were involved in covering up its losses, the practice became the status quo, and no one questioned it. Further, Enrons leadership operated as though it thought it had immunity for all its actions. Considering its connections to Vice President Cheney, this mindset is easily explained. Management just continuously swept issues under the rug, relying on inside connections, and the overall corrupt culture to not divulge the true losses of the company. This goes to show that good business leadership often means making costly choices to face problems head on rather than continually trying to cover up issues. Indeed, if Enron leaders had chosen a restructuring strategy, and divulged the financial loss that its SPEs were accumulating, they would have lost significant stock value and profits, but perhaps they would still be solvent. Instead, their intrinsic culture of deceit ultimately led to their...

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