Essay About Opaque Financial Disclosure Policies And Limited Scrutiny

Enron: The Smartest Guys in The Room
Enron: The Smartest Guys in the RoomAt the beginning of the film, it says that Enron is a story about people and a human tragedy. To some extent, many people lost sense of morality. The arrogance, greed, and ignorance of human nature is evident in the story. In Enrons case, the mark-to-market practice led to schemes that make the company seem to be more profitable than it really was. They could claim the projected profit on its books, even though it hadnt made one dime from it. They made the illusion of a business where there was none. With opaque financial disclosure policies, financial results were easily manipulated. And shareholders, even most employees had little information about how money flew through the company and the actual interest. Enron’s creation of off-balance sheet partnerships was designed to hide the losses and debts and also to enrich those executives. The collective failure and synergistic corruption of the gatekeepers – external auditors, analysts, and credit rating agencies –were important factors that led to the collapse of Enron. They might saw the emperor that had no clothes, but they didn’t expose the questionable financial and accounting decisions because of the benefit entanglement, even though many of them were experts in laws, finance, investing and accounting. Even the board had limited information, there was a fiduciary failure since they allowed Enron to engage in high risk accounting, extensive undisclosed off-the-books activities, inappropriate public disclosure, and excessive compensation. Also, the limited scrutiny the board gave to many transactions, such as those between Enron and the LJM showed that they didn’t take their responsibilities. The lack of market discipline of corporations is another problem. There were supposed to be checks and balances in the system for better accounting rules and disclosure. But the government did nothing to stop these smartest guys. Maybe the reason involved in political factors. Because of the financial havoc Enron wreaked on its shareholders and employees, new regulations and legislation were enacted, such as the Sarbanes-Oxley Act that was signed by President George W. Bush.