Harmonization of Accounting Standards

The Enron scandal was identified as one of the most devastating scandals in the history of modern business. The effects of this single scandal spread throughout the United States and critically calls for significant changes in financial evaluation standards (‘The Enron Effect’. 2006). In the beginning, Enron was recognized as a respected modern day company established from the merger between Houston Natural Gas company and InterNorth Natural Gas company. The merger resulted both an interstate and intrastate natural gas company in control of 37,000 miles of gas pipes.

The company kept on growing and evolving, and in August 2000, it stocks hits a record price of $ 90 a share. At that time, the company was already transformed to trading powerhouse (‘Enron Timeline’, 2002). Several names that was involved in the scandal that follows the amazing corporate success were Ken Lay, which was the chairman and CEO of the company, Jeff Skilling, who replaced Ken Lay as CEO in December 2000 and Andrew Fastow, corporate CFO. Six months after signing up as CEO, Jeff Skilling resigned and Ken Lay was named as CEO again.

In October 2001, in a condition where corporate share prices are still sky high, Enron suddenly reported a third quarter losses of $638 million and revealed a $1. 2 billion reduction on shareholder equity (‘Enron Timeline’, 2002). In the same month, Enron fired Andrew Fastow and accept a formal investigation from the SEC. The investigation revealed the historical fact that in the last5 years, Enron was experiencing losses which totaled to $586 million. In November, Enron’s share was reduced to lees than 1$.

In December, the company filed for a chapter 11 bankruptcy protection and revealed its plan for laying off approximately 4,000 workers. Afterwards, the investigation toward the entire managerial components of Enron started. The investigation led to the conviction of Arthur Andersen Company, Enron’s former auditor. David Duncan, Arthur Andersen’s auditor who worked on Enron plead guilty in April 2002 for ordering to destroy tons of Enron-related documents as the SEC began investigating the company.

The plea was a response to an investigation started in March toward Arthur Andersen for obstruction of justice (‘Enron Timeline’, 2002. Benner, 2002). As the investigation moved on, more accusation was filed on Enron’s top managers. In February 2002, Michael Kopper, Andrew Fastow’s top aide, pleaded guilty to conspiracy in committing wire fraud and money laundering conspiracy. With this plea, Andrew Fastow was also brought down by charges of fraud, money laundering and improper partnership. Surprisingly, the scandals were tracked to wider scope than just Enron’s top managers.

For instance, Lea Fastow, the wife of Andrew Fastow and former assistant treasurer in Enron was charged for conspiracy in filing false tax form in support of her husband’s deals. Tricked investors even stated that Lea Fastow was still selling Enron’s stocks allegedly, just minutes prior to the announcement that Enron’s share was dropped to near worthless. II. Accounting theory and Professional Ethics In response to the devastating scandal, accounting boards and accounting principles was attacked by criticism and accusations.

Nevertheless, accountants are also trained in ethical conducts as well as practical knowledge. Furthermore, ethical measurements are also reflected in existing accounting principles and standards. For instance, the conservatism principle, which is embedded within the core framework of preparing for annual reports, stated that in doubt, accountant and auditors must choose numbers that are less likely to overstate assets and income. These standards exist well before the Enron case took place.

Another example is the full disclosure principle, which stated that financial report must account for all material substances that might influence external opinions about the company. PART B I. Harmonization of Accounting Standards Harmonization of accounting standards is defined as continuous process of ensuring that the generally accepted national principles of accounting within a country is continuously formulated, aligned and updated to international best practices, with acceptable modifications and fine tuning to account for domestic conditions.

This concept is highly applicable because harmonization is different to standardization. With the existence of local differences, standardization of accounting principles would be hard to perform, but by allowing a certain degree of variation, harmonization becomes a highly applicable concept (Mogul, 2003). II. Technology and Harmonization In relation to the enhanced practice of accounting harmonization across countries, technology becomes one of several influential factors to the success and failure of accounting principles harmonization.

This is possible because technology has become a central part of corporate financial management. Thus, the practice of accounting principles in most companies is reflected on how they design their accounting software. Therefore, the presence of an accounting software that is reliable and widely distributed internationally will make it a lot easier to achieve the goals of accounting principle harmonization (Mogul, 2003) III. Cross Cultural Accounting Mergers and international expansions of accounting firms revealed the influence of cultural issues in accounting operations.

These accounting firms realized the great need for specifically consider cultural diversity and its effects on employee ethical sensitivity and decision making. Local partners must meet the diverse needs of local clients. Lately, the impact of cultural differences lead to the use of expatriate manager in training programs by accounting firms (Mogul, 2003).


‘The Enron Effect’. 2006. Time. Retrieved August 17 2007 from http://www. time. com/time/2002/enron/search Benner.

Katie. 2006. ‘Lesson from Enron: Just Say Sorry’. Retrieved August 17, 2007 from http://money. cnn. com/2006/10/25/magazines/fortune/pleabargains/index. htm? postversion=2006102511 ‘Enron Timeline’. 2002. Chron. Retrieved August 17 2007 from http://www. chron. com/disp/story. mpl/special/enron/1127125. html Mogul. Samir S. 2003. ‘ Harmonization of Accounting Standards’. Retrieved August 17 2007 from www. icai. org/icairoot/publications/complimentary/cajournal_jan03/p681-684. pdf

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