Understanding enron Assignment Example | Topics and Well Written Essays - 750 words

Understanding enron - Assignment Example Enron is a unique data point which cannot be considered a trend. Another perspective suggests Enron as an example of systematic governance failure. Openly roiling the market, Enron has established new demand among investors for transparency. Market has discovered that professional staff like gatekeepers cannot be trusted for handling the financial data. Enron demonstrates gatekeeper failure. Gatekeepers provide services of verification and certification to the investors. Attorneys are more of transaction engineers than reputational intermediaries, though they can also be included in the category of gatekeepers. Gatekeepers are known as valuable sources of information because of their tendency to provide honest assessment, though gatekeepers derive their importance from pledging a reputational capital, that is too dear to them to sacrifice for a little fee. However, heavy gains optimize a gatekeeper’s tendency to comply in managerial fraud. Enron’s gatekeeper let the man agers do fraud. The status of gatekeepers is changing. Arthur Andersen engaged in several security frauds. The number of earning restatements and the amounts involved increased by the 1990’s. Most securities analysts kept recommendations on the stock of Enron till its bankruptcy filing. Analysts are also reputational intermediaries. The ration of buy to sell kept increasing over the years in the 1990’s. Something made the gatekeepers compromise the objectivity and independence. Enron provides an example of the collective failure of gatekeepers, including the auditors, the analysts, and the debt rating agencies. Two explanations can be laid for the ignorance of the massive fraud by these watchdogs; the economic general deterrence story and the psychological bubble story. 1990’s saw a decline in the risk of auditor liability along with an increase in the benefits of acquiescence, which