The Milgram experiment was done to make out the time a person can take an order prior to them querying that order. With an objective anchored in the chase of profit, Enron workers were continually asked to break laws or execute acts that may perhaps be regarded as depraved. A small number of Enron workers ever came onward to report the dishonesty. The aspect that unavoidably led to individuals stepping forward was a "sinking ship" sentiment, resultant in a few Enron management officers selling their shares whereas encouraging workers to maintain theirs.
2) Relate the Milgram Experiment to the Corporate Culture found at Enron DO NOT ONLY use the Enron Energy Services Traders as your example, but you may relate their actions in your response
The Enron style corporate culture is characterized by a notion that in spite of what happens to customers, shareholders, and workers not in management, managers would persist to insist people maintain the course. When the SEC started examining Enron, Ken Lay reiterated traders and other workers that he and the corporation were frauded by Fastow, however the corporation’s auditor Arthur Anderson busy shredded proof of misconduct. He transferred all liability to Fastow, the Government, traders, and anybody who was not part of the managerial headship.
Jeffrey Skilling advised workers to invest into Enron stock whereas he did fraud. He moved his money out of the stock. In this respect, his Milgram Experiment engaged in manipulating workers that what they were doing was accurate. Workers had trust in management. Workers and shareholders were scammed for more than 20 billion. Milgram’s experiment highlights that leadership is eventually accountable for corporate culture.
3) How lessons can you as an auditor learn from the Enron Corporate Culture discussed above; specifically what elements would you look for remembering that you will not have the hindsight provided by the movie (provide real-time examples of procedures and actions)
I can say from the Enron’s corporate culture, as an auditor I can learn the following lessons. They include: examining one’s ethical ambiance and putting necessary protections in place, building a strong ethics infrastructure that is self-sufficient, publicly being obligate to being a principled association, as well as having a separate auditing from consulting operations. Talking with workers at all levels often is also a valuable lesson in addition to building a principled behavior into corporate schemes. One can as well establish an Ethics Committee to continually keep the business alert on the main provisions of the Federal Sentencing Guidelines of 1991.Choose to live your corporate values and Keep the lines of communications open.
4) Discuss the importance of the Auditor knowing the client’s environment as it relates to the "Black Box" described by Bethany McClean and Jeff Skilling in the movie.
A black box is a tool, scheme or object which can be analyzed exclusively in terms of its input, productivity and transfer distinctiveness devoid of any information of its inside mechanism, namely, its execution is opaque. The company was like a black box and a nightmare for auditors. Knowing the client’s environment especially Corporate Culture.
5) Identify the red-flags the Auditor should have seen during the audit and describe how the auditor should have seen or gained knowledge of this fact.
Item Red Flag Identified
Source of Knowledge Regarding Red-Flag
The informer mark, certainly, is accounts receivable growth beyond reported revenue heights.
abnormal balance sheet deferrals
This can looked under the assets section known as prepaid or deferred assets.
fabricating definite revenue earned
The prior types of revenue reporting are often anchored in authentic income to be earned in the future.
Capitalizing present year expenditures
Can be looked at the profit and loss account
This is related to cookie jar accounting
Reporting expenses prematurely
The sign is found in the liability segment as a special charge booked in the contemporary year.
Off-balance sheet supplementary
Hard to find
translating reserves into revenue
These include reserves for bad debts, which reduces the current asset value of accounts receivable, and reserves for absorption of merger and acquisition profit or loss.
widen the rate of write-offs to a longer time phase
The company set up assets and depreciates them over a period of years.
Odd changes in bookkeeping policy
The company adjusted reported net wages simply by altering accounting guidelines.