Before the Enron Collapse: What Corporate CFOs Around the World Said About the Status of Accounting and Disclosure Practices

Abstract

Corporate Chief Financial Officers (CFOs) in many countries at different levels of development and in various parts of the world considered financial statement disclosure and corporate corruption to be serious corporate problems long before the Enron debacle. This paper presents the results of a survey of CFOs conducted across 40 countries during the fall of 2000 and the spring of 2001. Most of the respondents, including those in the United States, considered the lack of adequate disclosure of information by companies to be a bigger issue than either corrupt business practices or a lack of effective accounting guidelines. Only in the United Kingdom did more CFOs consider the lack of effective accounting guidelines to be an issue of more concern than the lack of disclosure.

Transparency matters: The concept of organizational transparency in the academic discourse

“…While Hebb argues that opacity and secrecy distort efficiency in decision making, Piske states that process transparency fosters efficient cooperation in change processes. Others refer to the efficient functioning of markets that could be diminished without transparency (Barth et al, 2003) and the enhancement of information visibility through formalized procedures (Hsu et al, 2009).…”

Corporate Governance and Fraud: Evolution and Considerations

“…A survey of CFOs (40 countries, between 2000 and 2001) showed that the lack of adequate disclosure of information (risk taking, company's strategy and plans and financial goals) was an issue of most concern around the world [68]. It illustrates that spectacular scandals were not isolated cases.…”

“…Among varied practices used to perpetrate the fraud, Enron created a business non regulated, promised unreal gains, fragmented processes in order to control employees by rotinization and socialization and to diffuse culpabilities, granted exceptional compensation for deviant activities, created a complex structure of companies to simulate transactions, executed accounting frauds to cheat investors, auditing and regulation and got involvement of third parties (auditing, politicians, analysts, rating agencies and financial institutions) (see [29,53,[68][69][70][71][72]). All of these were facilitated by the mega spectacle of image projecting accessing cognitively the ideology of power and competence, neutralizing any critical position.…”

The Corrupt Corporation: A Galbraith-Inspired Analysis

“…In developing countries, as could be expected, CFOs regarded corruption to be the more important problem, as compared to disclosure issues and issues relating to accounting guidelines. Barth et al (2003) also contend that the lines between law and accounting are becoming very blurred. In their view, inadequate training in accounting theory and practices on the part of lawyers resulted in a diminishing competence on the part of lawyers to understand and effectively monitor the firms whose operations were being analysed.…”

“…Barth et al (2003) Financial markets wondered why the redemption was a problem for a group with more than euro 4 billion of reported cash and short-term assets. Investors panicked when Parmalat admitted that it had been unable to secure the release of almost 500 million euros trapped in a mutual fund in the Cayman Islands.…”