price setting by the CEO 1953



  • Denis if I understand well…
    …CEO can set the prices but if there related parties exist it must be disclosed and then everything is ok?



  • I agree … SOX regulatory controls are mainly designed to prevent fraudalent accounting practices (rather than restrict the manner in which companies can do business). Thus, senior executives could provide pricing guidance or even approve discounts on their prices if they choose (albeit, keeping in mind the good concerns shared by Kymike and Denis). SOX itself shouldn’t prohibit the freedom a company would have in setting prices, profits, etcs. (as long as there is no deciet, fraud, cheating, etc.)



  • Denis if I understand well…
    …CEO can set the prices but if there related parties exist it must be disclosed and then everything is ok?
    Essentially yes, although this is a simplification. One also has to, generally, ensure that transactions with related parties are conducted on commerical ‘arms-length’ terms.
    One might observe Enron as an organisation that conducted related-party transactions on less than arms-length terms e.g. deals on unfavourable terms with entities controlled by Fastow



  • CEO can set the prices but if there related parties exist it must be disclosed and then everything is ok?
    Hi - Special Discounts due to VPAs or favorable relationships should never be shared with competitors, as it may create issues.
    However, these discounts must be disclosed internally . This is due to the need to track sales and pricing from a financial standpoint and to assue that the business transaction was conducted ‘above board’ with no fraudulant activities taking place.



  • Denis
    Enron occured due to lack of oversight by the regulatory bodies as well as scope issue on part of external auditors. As long as there are transparencies courtesy post SOX era, CEO’s involvement could be an non issue.



  • One might observe Enron as an organisation that conducted related-party transactions on less than arms-length terms e.g. deals on unfavourable terms with entities controlled by Fastow
    Enron occured due to lack of oversight by the regulatory bodies as well as scope issue on part of external auditors.
    I agree with both points. Also, there were significant manipulations of financial statements, (i.e., cooking the books) by senior executives. The dishonesty of a few folks and companies led to everyone having to incur a little more extra work and expense than we had in the past.



  • Denis
    Enron occured due to lack of oversight by the regulatory bodies as well as scope issue on part of external auditors. As long as there are transparencies courtesy post SOX era, CEO’s involvement could be an non issue.
    COMPLETE NONSENSE.
    Enron OCCURED due to an unprecedented level of manipulation and dishonesty by senior executives. Its reported financial condition was was sustained mostly by institutionalized, systematic, and creatively planned accounting fraud.
    Whilst there were clear failures in oversight by regulators and auditors alike they were not the CAUSE. They could have (and should have) detected issues and acted earlier but the blame has to fall squarely on the shoulders of Lay, Skilling, Fastow et al.



  • I do believe that the lack of oversight was the opportunity, not the cause. And, when preparation meets opportunity, we have Enron…



  • No Comments. This would go on and on and on.
    BTW, Denis and Lekatis,
    Do you have a Big 4 background? Based on this I can respond accordingly, if you want me to.
    There is always a room for healthy debate.



  • Respond if you wish. I do have a big 4 background, but have been out for a few years and have no great allegiance to them.
    On the basic question to who is to blame for Enron (and the others) you have to say it is first and foremost management. They committed illegal acts and mislead regulators and auditors alike at significant personal gain. The accountability for running a public company rests solely with the Board and this is indisputable.
    Were the auditors and regulators deficient? ABSOLUTELY. However, this still does not mean that they CAUSED the problems. They are, of course, complicit and must take some of the rap - but they are the definitely only the supporting cast.



  • One aspect of this where there may be some indirect SOX issues is revenue recognition. Certain standards require the use of fair values to allocate revenue to deliverables (i.e. bundled sales or multiple element arrangements). To the extent the pricing is not reflective of fair value, you may have to have a ‘stop’ in the revenue process to consider the appropriateness of the revenue amounts if based on the actual sales prices.


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