Smartest Guys in the Room

1. Smartest Guys in the Room Pre-Reading

2. Historical Perspective • In 1985 corporate mergers and management are negotiated to form what will be ENRON, and Kenneth Lay is placed at the helm. • The following clip, from a movie “Wall Street” provides insight to America’s feeling of corporations and the pursuit of wealth….Wall Street - Greed Is Good.flv

3. The Smartest Guys in the Room:Ken Lay & Jeff Skilling

4. Organizational Structure of a Corporation

5. Organizational Structure of a Corporation • Elect the Board of Directors • Rely on: • stock anylasts, - the Securities and Exchange Commission (SEC), • corporate financial reports from the corporation and approved by auditors • To determine the health of the company and value of stock

6. Organizational Structure of a Corporation Establishes corporate policy, appoints the CEO and other officers, reviews operations through financial reports Create the mission statement of the corporation which defines the company’s vision (the direction and future of the company) and values (how the company is going to get there)

7. Organizational Structure of a Corporation Manage day – to – day operations Responsible for creating the action plan to achieve the vision Enron’s vision…

8. Organizational Structure of a Corporation Their efforts determine the success of the company Enron’s vision…

9. Watchdog Groups • groups that monitor and report on corporate abuses, can be both internal and external • Internal – employees, Board of Directors • External – auditors, SEC, anylasts, bankers

10. Watchdog Groups – Internal Control • Assets are used for business purposes only - the company doesn’t pay for personal expenses • Business information is accurate - all assets, liabilities, revenues, etc. are correctly accounted for and recorded on financial statements • Employees comply with laws and regulation - GAAP, environmental regulations, etc.

11. Watchdog Groups – External Control • FASB - a private, not for profit orgainization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the U.S. in the public's interest • SEC - The mission of the U.S. Securities and Exchange Commission is to protect investors

12. Accounting Ethics vs. Life's Ethics: Is There Much Difference? During the past few years, the accounting and business communities have been faced with huge ethical conflicts that shook the related professions to their core. What are the responsibilities of management, boards of directors, the internal accounting departments, the external auditors, the underwriters, the legal departments both internal and external, and who are they responsible to? Enron, WorldCom, Tyco, Xerox, Adelphia, Global Crossing contained numerous ethical decisions for each of these groups and most of the public would agree that the system failed. Arthur Andersen, historically one of the most stalwart and conservative of the international CPA firms, was deemed to have failed in fulfilling their responsbility to protect the public in multiple cases of fraud and mismanagement. Two of the four largest remaining international CPA firms - KPMG and Ernst & Young have been fighting charges of developing and promoting tax shelters that have put into question the role of accounting firms in today's society.

13. "mark to market" accounting • Allows companies to count profits they expect to earn in the future as current

14. The Enron Effect