Case Analysis : Enron Corporation

The story of Enron is truly remarkable. As a company it merely controlled the electricity, natural gas and communications sectors of the world. It reported (key word, reported) revenues over one hundred billion US dollars and was presented America’s Most Innovative Company by Fortune magazine for six sequential years. But, with power comes greed and Enron from its inception employed people who set their eyes upon money, prestige, power or a combination of the three. The gluttony took over sectors which the company could not operate proficiently nor successfully.

The Enron scandal has far-reaching political and financial implications. In just 15 years, Enron grew from nowhere to be America's seventh largest company, employing 21,000 staff in more than 40 countries. But the firm's success turned out to have involved an elaborate scam. Enron lied about its profits and stands accused of a range of shady dealings, including concealing debts so they didn't show up in the company's accounts. As the depth of the deception unfolded, investors and creditors retreated, forcing the firm into Chapter 11 bankruptcy in December. More than six months after a criminal inquiry was announced, the guilty parties have still not been brought to justice.

In October 2001, Enron Corporation which was one of the world major energy, commodities and service companies with claimed revenues of nearly 111 billion dollars during 2000 collapsed under the weight of massive fraud in that it has become largest bankruptcy recognition in the US economy. Enron’s earning report was extremely skewed that losses were not represented in their entirety, prompting more and more wishing to participate in what seemed like a profitable company. After collapse of Enron, Auditor independence has become a social issue that weather auditor has to be independent or not. In addition, while auditing must consider matters objectively with dispassion, there were still doubts whether it implemented well. Further, there has been much speculation about the need for the mandatory rotation of auditors or audit firm rotation to warn false accounting between audit firm and client. By examining Enron case, this essay will discuss about advantages and drawbacks of the mandatory rotation of

In review of the Enron case, executives higher up exploited their privileges and power, participated in unreliable treatment of external and internal communities. These executives placed their own agendas over the employees and public, and neglected to accept responsibility for ethical downfalls or use appropriate management. As a result, employees followed their unethical behavior (Johnson, 2015). Leaders have great influence in an organization, but policies will not be effective if they do not abide by the policies established. “ Enron: The Smartest Guys in the Room” demonstrates how the nature of people do not change, whether it’s terminating employees as way to handle issues, or ongoing fascinations for profitable advances. Enron’s collapse produced a culture that prioritized profitable gains.

Enron was one of the largest energy, commodities, and services company in the world. It was founded in 1985 and based in Huston, Texas. Before its bankruptcy on December 2, 2001, there are more than 20,000 staff and with claimed revenues nearly $101 billion during 2000. Enron was the rank 16 of Fortune 500 in 2000. In 2001 it revealed that Enron’s financial report was planned accounting fraud, known since as the Enron scandal. In the Enron scandal, Enron used fraudulent accounting practices to cover its fraud in reporting Enron’s financial information. Its purpose is to hide the significant liabilities from its financial statement. Enron tried to make its financial report with great revenue to attract more people to invest it. It continued to spread the information that advance its stock price continued to rise. In fact, Enron was with a large amount of liabilities and loss. The key executives of Enron continually spread the fake information of Enron’s financial report and kept encourage the people to buy its stock. They knew the real financial condition of Enron. They knew the outlook of Enron is not good, so they sold their stocks secretly to generate profit before the company bankruptcy. After the people knew that Enron had a large amount of loss, the stock price was drop from 90 dollars per share to just pennies. In addition, the bankrupt of Enron had a great effect in the California energy market. The bankrupt of Enron made California had a shortage of electricity

Enron was a business conglomerate during the 1990s, formed by the merger of smaller oil and energy companies. Houston executives Kenneth Lay (Chairman), Jeffrey Skilling (chief executive officer (CEO) and Andrew Fastow (chief financial officer (CFO) parlayed their new mega-company into a favorite Wall Street company, bragging of record profits with negligible losses. During the 1990s, the three senior executives changed Enron from a traditional gas and electricity company into a $150 billion energy corporation. For instance, from 1998 to 2000 only, Enron’s returns rose from approximately $31 billion to over $100 billion, making the company to be the seventh biggest conglomerate of the Fortune 500. Unidentified to nearly everybody, this picture was the result of one of the largest swindles in financial history (Ferrell, Fraedrich & Ferrell, 2013).

When companies choose the wrong path to take and default thousands of people at times the corporations or government loses sight of what is really important for everyone involved or the general public. “Were it not for these whistleblowers, many companies would have gotten away with corruption that in some cases led to the public losing money, and in others, potentially their lives” (Gray, 2012). Those that bring light to problems within a business or government have a lot at risk including their own job and integrity. The choice in which one needs to make is does one ignore and put aside what may be happening, or take the stand against what is not right; no matter what may happen or any consequences or repercussions that may become as result. “It also seems to be an idea that appeals to common sense and is often regarded, therefore, as one that most people use even when they don 't realize they are applying a specific ethical theory” (Mosser, 2013).

1. The Enron debacle created what one public official reported was a “crisis of confidence” on the part of the public in the accounting profession. List the parties who you believe are most responsible for that crisis. Briefly justify each of your choices.

The party with the highest level of contribution to the demise of Enron would have to be their external and internal auditing firm Arthur Anderson. The primary responsibility of any auditing firm is to ensure the accuracy and validity of a company’s financial statements. Investors and stakeholders both internally and externally use this certified information to make critical business decisions. Arthur Anderson willfully partook in the scandals and subsequently went from the largest accounting firm in the world to dissolution in a matter of three years.

Rule based accounting standards are difference from principle based standards in that rule based standards are just that – rules. For instance, the Internal Revenue code is rule based. There are things you can do and things you can’t. When rules are broken,

At some point, Enron executives use the deregulation of Californian energy market to raise the price of electricity, getting other company to join in action and make skyhigh profits. At the end, all these illegal, unethical actions they had done snowballed and they could not stop because once they could not hide their debts, and government institutes started to suspect, they are left with nothing to protect themselves. They took a high risk road to profit, followed a strategy of ‘win at all cost’ so it will later come back at them. Throughout company’s history, its culture had been an unethical one, with staffs from executives to accountants to associated firms having joined in their strategies and performed underhand actions. The environment was set for them to success in their scams because they brought in people and company having the same mind set. As for personal values, they executives only cared about themselves and whoever on their side. The financial executive, like Fastow even stole money from the company for himself and it was 40 million dollars. They pocketed millions of dollars so they did not pay much attention to what would happen to their employees once this scam was taken out of the dark. After Enron bankrupted, their employees had nothing in return, not even pension money and shareholders, with the stock price of the company being lower than a sing dollar, lost everything. In conclusion, what happened at

Public accounting firms have long played a role in convincing the public the authenticity of the corporates’ financial statements. However, the public started to become skeptical about accountants’ reliability when the Enron scandal occurred. In October 2001, SEC started an investigation against Enron for improper accounting practice. According Sherron S. Watkins, the former vice president for corporate development, Enron failed to disclose complicated deals with its partnerships to inflate the stock price. In a report by Enron’s law firm, Arthur Andersen, the accounting firm that was in charge of auditing Enron, was involved and failed to report the partnership transactions, which resulted in the collapse of Enron.

Imagine one day owning thousands of shares in a multi-billion-dollar company worth million to then wake up the next to find out those shares are now worthless. This was the sad truth for many people and employees invested into the big power giant known as Enron in the early 2000s. Enron was a company formed in a merger that was a huge supplier of natural gas and electricity. Enron executives encouraged their accounting team to manipulate their financial statements to make their company performance look better than they actually were. As a result of this constant illegal practice, Enron declared bankruptcy in December 2001 after reporting a 3rd quarter loss of $618 million that sent their stock value plummeting (Corrupt Crimes). Former CEOs

At one time Enron was one of the world’s largest producers of natural gas, oil, and electricity. It also appeared to be one of the most profitable companies, taking shareholders from $19.10 in 1999 to $90.80 by the end of 2000. Enron’s top management answered to a Board of Directors whose responsibility was to question and challenge new partnerships, ventures, and decisions within the company. On several occasions, Andrew Fastow, the company’s Chief Financial Officer approached the board of directors with new investment partnerships which the board approved with very little

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?