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Case Study: Accounting for Enron

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Case Study 9
Kim Chau
California Southern University
MKT 86519
Dec 19, 2014
N. Papazian

Accounting for Enron
Introduction
In the case of Accounting for Enron, the case concerned one of the largest corporate bankruptcies in the US history at the turn of the 21st century. It was Enron Corporation, a one time seventh largest most successful US company, sixth largest energy company in the world, valued at over $70 Billion; they filed for chapter 11 on December 2, 2001. Just the year before, Enron posted a 57% increase in sales between 1996 and 2000. And Enron shares hit a 52-week high of $84.87 per share in the last week of 2000 (O’Leary, 2002). As the story unfolds, investors lost billions of dollars and thousands of people lost
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Backstabbing, cunning, unscrupulous and individual-focused were the ways to behave and to be rewarded. "In the Enron culture, there was no significant counterbalance," says Jon R. Katzenbach (Businessweek.com, 2002), a consultant and former McKinsey colleague of Skilling who has studied the company. "The lesson is you cannot rely solely on individual achievement to drive your performance over time. Companies with only that one path overemphasize it and run into trouble, switching over to vanity and greed." A ruthless culture was brewing at all levels of the organization, which set the stage for Enron’s unethical business dealings. Combine the cold-bloodedness of the company culture with Skilling’s relentless risk taking to drive growth; Enron was primed for an epic financial accounting deception. By 2000, trading operations accounted for 99 percent of income, 88 percent of income before tax and 80 percent of identifiable assets, while reported revenue increased from $11,904 million in 1996 to nearly $100,000 million in 2000 – a tenfold increase (Epstein and Lee, 2009). Skilling shifted Enron’s business model from a gas trading and pipeline company to become a Wall Street-like financial trading machine dealing with all sorts of commodities, derivatives, options and hedges. With the diversification, Enron was betting on too many horses and too many risky horses. To offset
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