Accounting Scandals And Enron Accounting Scandal

On October 16, Enron announced a $638 million loss for the third quarter, and Wall Street reduced the value of stockholders’ equity by $1.2 billion. Enron announced November 8, that it had overstated earnings over the past four years by $586 million and that it was responsible for up to $3 billion in obligations to various partnerships. A $23 billion merger from rival Dynegy was dropped November 28 after lenders downgraded Enron’s debt to junk bond status.

In 1987, the misappropriation of money by two traders of Enron Oil brought to light the Valhalla scandal. These traders created offshore accounts and phony books, thus betting on the price of oil for Enron on both sides. Despite the executive board’s attempt to bring this case to Lay’s attention, no action was taken against these traders. On the contrary, they were encouraged to keep making money. The traders bet all of Enron’s money

In 2001, Enron, the largest energy company in the U.S., collapsed after a vast creative-accounting scandal. Enron practiced a type of accounting called mark-to-market practice which it used to hide losses. Mark-to-market accounting it not illegal on its own but it was used improperly by Enron. The CFO and CEO of Enron were able to write off any losses to an off-the-book balance sheet and made the company appear financially healthy (Seabury, 2008). Investors lost $74 billion while thousands of employees lost their jobs and

Enron incurred massive debt as a result of the merger which led to it losing exclusive rights to its pipelines. Enron at this point had to come up with a new innovative business strategy in order to survive. CEO, Kenneth Lay hired services of McKinsey & Co. to aid in the process of developing a business strategy. Jeffrey Skilling, a young consultant was assigned with the responsibility. Skilling proposed a revolutionary solution to convert operations from energy supply to energy trading.

In 1985, Houston Natural Gas Company and InterNorth, after federal deregulation of natural gas pipelines, merged to form a new company, Enron. Kenneth Lay had joined Houston Natural Gas before the merger as chairman and CEO. After the merger, Kenneth was appointed chairman and CEO of the newly formed company (Biography.com, n.d.).

Enron began by merger of two Houston pipeline companies in 1985, although as a new company Enron faced a lot of financial difficulties in the starting years, though the company was able to survive these financial problems (Enron Ethics, 2010). In 1988 the deregulation of the electrical power markets came into action and flipped the company from up to down, after deregulation company business updated from delivering energy to becoming an energy broker and soon after this Enron once a company struggling

Enron was formed in 1985 following the merger of Houston Natural Gas Co. and InterNorth Co. The Chairman Kenneth Lay, CEO Jeffrey Skilling, and CFO Andrew Fastow were the backbone of Enron during its growth period. These executives exercised their power and expertise to unethically “increase” Enron’s profits by hiding the company’s debt. The ethical dilemma that Kenneth Lay and Jeffrey Skilling faced was whether to let their stakeholders know how poorly the company was doing, or to hide the debt. They chose to cut corners and falsify information that would later come back to get them in trouble.

In 1985 after federal deregulation of natural gas pipelines Enron was formed through a merger of Houston Natural Gas, and Nebraska pipeline company Internorth. Enron went on to create energy derivatives and in 1990 formed Enron Finance Corp. By 1996 Enron had also formed Enron Capital and Trade Resources increasing their growth from $2 billion to $7 billion and increasing division employment from 200 to 2,000. In 1999 Enron entered the technology market by creating Enron Online (EOL). By August of 2000 Enron stock hit its zenith at $90.56/share and the firm was widely admired and emulated. Behind the scenes Enron faced increasing market competition and energy prices began to decline as the world economy entered into a recession. Enron began to use related party transactions and special purpose entities (SPEs) to obscure the firm’s leverage ratios in order to maintain their credit rating. It would be the use of the SPEs that eventually cause Enron to materially restate their financials resulting in their insolvency and demise in 2001 (Thomas, 2002).

In light of the recent scandals that rose around big multinationals such as Enron and WorldCom, it has become evident that reform in the traditional corporate operations and objectives was to be encompassed in the organisations corporate strategies. Indeed throughout the years, companies main objectives were defined primarily as being economic objectives, Multinationals developed with sight of profit maximisations regardless to the other incentives, Friedman considered that to be the foundation for a well-managed company, it was further considered that the financing of any other sort of social corporate activities rather unnecessary. The expenses were regarded as expenditures for the owners and investors; this was a time where shareholders rights were regarded as conflicting with other constituents namely the employees, creditors, customers or the community in general. However this interpretation is seen as rather inadequate due to the nature of the amalgamated relation between both constituents. Stakeholders in modern corporate doctrine are considered as a core apparatus for the well functioning of a business. It is however often argued that the only way for a corporation to achieve better results and maximise its profits is to include other people in the process, individuals or organisations with direct or indirect interest in the well performance of the company, that is the reason why modern regulations and codes include a number of stakeholders other than the

Enron lost billions of dollars within a couple of months. This record breaking stock drop landed the company on the Exchange Commission and the U.S. Justice Department’s radar resulting in an investigation that revealed the company’s corrupt business practices ultimately shocking the world,

All of the prior represents the business side of the downfall of Enron. That being said, businesses fail all of the time. The reason why Enron Corporation and its executives will always live in infamy is not because the company failed, but how and why the company failed. How, exactly, does a company worth about $70 million collapse in less than a month? It became clear that the company not only had financial problems, but ethical problems that started from the top of the company and trickled down. A key player in these problems was Jeffrey Skilling. He was a man brought to the company by Ken Lay himself. Skilling brought his own accounting concept to the company. It was called mark-to-market accounting. This concept allowed Enron to record potential profits the day a deal was signed. This meant that the company could report whatever they “thought” profits from the deal were going to be and count the number towards actual profits, even if no money actually came in. Mark-to-market accounting granted Enron the power to report major profits to the public, even if they were little or even negative. It became a major way

Ethics in the business world can often times become a second priority behind the gaining of profits and success as a company. This is the controversial issue that led to the Enron scandal and ultimately the fall of this company. Enron Corporation was an energy company, and in the peaks of their success, they were the top supplier of natural gas and electricity throughout America. Enron Corporation came about from a merger between Houston Natural Gas and InterNorth. Houston Natural Gas was a gas providing company formed in Houston during the 1920’s. InterNorth was a company formed in Nebraska during the 1930’s and owned one of America’s largest pipeline networks. In 1985, Sam Segnar, the CEO of InterNorth bought out Houston Natural Gas for $2.4 billion. A year later in 1986, Segnar retired and was replaced by Kenneth Lay, who renamed the company and created Enron. Enron was the owner of the second largest pipeline in America that measured over 36,000 miles. The company was also the creator of the “Gas Bank”, which was a new way to trade and market natural gas and served as an intermediary between buyers and sellers. As the company continued to develop, it became more of a trader rather than a producer of gas. This trading extended into coal, steel, water and many other areas. One of Enron’s largest successes was their creation of a website called, “Enron Online” in 1999, which quickly became one of the top trading cites in the world. By the year 2000 Enron as a company was

The Enron Scandal was an enormous controversy in 2001. This scandal went on for years until finally the government caught up with what was going on. In the Enron case, the company was stating that they were making profits from assets even though they were not making any money from it. They would also transfer any information to an off-the-books corporation if they were not making as much as they thought that they should be making. All this information would be unreported so that nobody would know that the company was losing money.

Most of the world has heard of Enron, the American, mega-energy company that “cooked their books” ( ) and cost their investors billions of dollars in lost earnings and retirement funds. While much of the controversy surrounding the Enron scandal focused on the losses of investors, unethical practices of executives and questionable accounting tactics, there were many others within close proximity to the turmoil. It begs the question- who was really at fault and what has been done to prevent it from happening again?

Enron Corporation was formed as the result of the July 1985 merger of Houston National Gas and InterNorth of Omaha, Nebraska. Their headquarters were located in Houston, TX. In its earlier years, Enron was a