Enron Corporation : The Enron Scandal

1172 Words Aug 3rd, 2016 5 Pages
The Enron Scandal
The objective of an audit is to “obtain reasonable assurance” of the credibility of the financial statements of a company . However, in some cases auditors can fail to recognize – or intentionally ignore – misleading data within a company’s financial statements, leading to negative outcomes for lenders and investors. This report will discuss the Enron scandal in which the auditing firm Arthur Andersen LLP turned a blind eye to the fraudulent actions of Enron Corporation, leading to the downfall of both companies and great harm to thousands of stakeholders.
Enron Corporation Background
Enron Corporation was an American energy company formed by Kenneth Lay in 1985 in Texas. Enron was hugely popular with investors throughout the 1990’s rising to become the “seventh-largest company in America” with a stock price of $83.13 (over 70 times earnings) by December 31st 2000 .
However, less than a year later, on December 2nd 2001, Enron filed for bankruptcy and the stock price plummeted to a mere $0.67 . This resulted in investigations into the company’s use of misleading, fraudulent, “aggressive accounting” techniques that understated debts and overstated earnings .
The Scandal
Timeline of Events
In 1990 Kenneth Lay hired McKinsey & Co consultant Jeff Skilling to improve Enron’s finances. Skilling joined the company on the condition that they adopt mark-to-market accounting for their long term contracts .
As a result of this implementation, alongside other…

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