Enron Accounting Scandal

Good Essays

Enron was originally a pipeline company in Houston, Texas in 1985. Enron became a company that was able to profit by providing deliveries of gas to utility companies and businesses. As the deregulation of electric power rose, Enron diversified the business and entered into an energy broker, which traded electricity and other types of commodities.
Enron employed several highly qualified PHDs in mathematics, physics, and economics. Enron continued to enter into contracts with customers and utilized a group of skilled employees to interpret, manage, and confine the high risks Enron was taking. Enron’s attempt to create a collection of partners that would permit employees to shift debt and losses off of the books would soon come to an …show more content…

The greatest disadvantage of the mark-to-market system is that once already in use by a company it is very hard for the company to change its direction of systems.

Enron had many SPE’s that it used to help defraud the company. Emerging Issues Task Force (EITF) created in the 1990’s help Enron maintain and conceal the SPE’s. EITF only required 3 percent of capital/assets to be contributed by independent external sources in order for a SPE to exist. Albrecht, a PhD in the AICPA (American Institution of Certified Public Accountants), states in his report:

EITF 90-15” (The 3% rule) Allowed corporations such as Enron to “not consolidate” if outsiders contributed even 3% of the capital (the other 97% could come from the company.) 90-15 was a license to create imaginary profits and hide genuine losses. FAS 57 require disclosure of these types of relationships (FAS 57 was proposed and implemented after the Enron scandal).

Enron had a $597 million dollar cash flow in the first half of year 2000 by taking loans out from banks such as Citigroup and Morgan- Chase totaling nearly 3.4 billion. Just in interests alone, Enron was collected 2 million dollars each day.

The damage incurred in the monetary form, was seen through the stockholders, employees, and other companies involved. Employee pension plans could not be paid, investors watched the stocks fall to $0.09 cents per

Get Access