Mini Case: Ethics Schematics- Enron’s Code of Ethics

1. What is the purpose of a code of ethics?

Code of Ethics states the principles and expectations governing the behavior of
individuals and organizations in the conduct of internal auditing. It describes the
minimum requirements for conduct, and behavioral expectations rather than specific
activities. It serves as a standard for the company workers to comply and to establish
values on an organization. A code of ethics consists of all the obligations that
professionals must respect when carrying out their duties and when breached, it has
disciplinary actions like giving a warning or dismissal from their professional order. This
Code of Ethics applies to both entities and individuals that perform internal audit
services.

2. Do you think the employees of Enron Corp. were told about the vote to put aside
key elements of the code of ethics? If not, why not? If they had been told about the
decision, what do you think their reaction would have been?
No, I think the employees about it for a reason. The more people who were
notified about the fraud that the company did, the greater the risk of a leak to the media.
You are to provide minimal knowledge if you know you will commit a fraud to the senior
managers for you to cover it and leakage will not happen. Moreover, the senior
management of Enron obviously saw themselves as beyond reproach and therefore under
no obligation to explain their actions.

3. Do you think that the employees of Enron Corp. were planning to defraud investors
all along? If not, why not?
I think the corporation was not planning of defrauding investors, because all
corporations are planning to have a good relationship with their investors. And with that,
they have to gain the trust of their investors and be honest with them. But because they
are afraid of bankruptcy that they opt to do unethical deeds rather than being truthful,
which they think will be a better way on soling the profit problem. But even so, the
employees are merely agents who follow everything that they are told by the
management and are not capable of doing such big decisions for the company.

4. Explain the conflict of interest in Enron’s relationship with Arthur Andersen.

Arthur Andersen surely has a big role in this scandal, because he served not only
as Enron’s auditor but also its consultant. Auditors are supposed to provide an objective
3rd party assessment of an organizations financial viability. It is impossible to maintain
that objectivity if you are also pursuing millions of dollars from the same client, that’s
why Arthur Andersen manipulate financial statements that requires not much work, but
also he would earn a lot.

5. Are there any events and/or practices that have happened in the Philippines of this
kind that was either published and/or have been part of corporate/business forum
discussion after the Enron scandal.
 In Metrobank, its head office vice president for corporate services, Maria Victoria
Lopez, was arrested for defrauding the bank of P900-million by making loans using fake
accounts in the name of a legitimate client, Universal Robina Corp. How she was able to
circumvent the bank’s strict processes and escape the attention of both the internal
auditors as well as external auditors should be exposed once the case will be heard in
court.