By law, corporations must disclose (reveal) financial information to the public, so the public and its investors can make sound financial decisions for themselves. This poses an advantage and disadvantage for corporations. If the company is doing well financially, then they will be in greater demand for investors to take a risk in their company. If the company is doing poor, financially, then they will lose out to competitors and be in less demand for investors to take a risk.
Enron, an energy distributing company was in a partnership with Arthur Anderson, an accounting firm. Arthur Anderson was responsible for auditing the financial books of Enron. Which means to examine, inspect, and report proper financial information to the public and Enron’s investors. Executives from both businesses secretly knew that Enron was in financial disaster and changed the numbers around in the financial books to show that the company was doing quite well. They shredded documents to hide the fact that Enron was in financial trouble. Enron executives later told their employees through emails that the company is growing and in good financial status. Enron employees were encouraged to invest in the company through their 401K, a retirement account. Several months later, Enron filed for bankruptcy and their stock price fell from $65 a share to $0.60 a share.
Is this action illegal? Explain your reasoning.
Does the action violate company or professional standards?
Who is affected, and how, by the action? (Positive & Negative Affects)
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