Accounting Scandals And The Enron Corporation

1721 Words Dec 2nd, 2014 7 Pages
Accounting scandals have happened in numerous companies. In one major case, the firm filed for bankruptcy, and many of its workers lost their jobs, savings, and investments from stocks. This major epidemic happen at Enron, an energy firm stationed in Houston, Texas founded by Kenneth Lay in 1986 (Frontain). On December 2, 2001, the Enron Corporation, an apparently strong and booming business, fell to an all-time low by shocking the world when it filed for bankruptcy protection. Many people were left unemployed and without their savings. Because of this scandal, numerous effects were left on the accounting profession since the scandal was traced to the company’s financial reports, accountants, and auditors (Buckstein Part 2, p.1).
Enron
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The employees were considered magicians because of their expert ability to handle the numbers in such a manner which made it look easy and precise. As Enron began to rely on the trading process, a few changes had to be made to their accounting techniques. Skilling implemented a technique called mark-to-market accounting where the present value of projected revenue is understood, and the expected costs of a contract become expenses after the contract is signed (Frontain). As part of the company’s annual report, the losses in market value and unexpected gains of continuing contracts had to be recorded. In 1999 the stock rose fifty-nine percent, and in 2000 it rose again another eighty-seven percent. Because of the rise in stock, Enron began to lose operation money by taking on more companies than they could handle. Nonetheless, with the help from its auditor, Arthur Andersen, it appeared stable. Enron used prepaid loans which helped the company raise cash flow; however, these loans were not included on the balance sheets. In 2001 over five billion dollars were invested in prepaid loans to raise cash flow and eliminate the debt (Frontain).
More investigation began after the discovery of Enron paying Andersen about fifty million dollars in 2000 for his auditing and consultant work. About three-thousand of its partnerships did not make their way onto the balance sheets leaving

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