Enron Was Formed In 1986 By Ken Lay (“Enron Case Study”,

Decent Essays

Enron was formed in 1986 by Ken Lay (“Enron Case Study”, n.d). It was an energy and service company based in Houston. “The early years of Enron were modest, and despite suffering financial woes and tremendous debt for several years, Enron survived.” (Rafraf & Haug, 2013). Enron was the 7th largest company on the Fortune 500 in the year 2000 with assets of $65 billion and revenue of over $100 billion (“Enron: Quality Assurance”, 2016, p 17). Despite of revenues in 2000, Enron filed for bankruptcy in 2001 affecting billions of shareholders. The Enron collapsed despite of being audited by one of the “Big Five” accounting firms called Arthur Anderson. What caused the Enron failure? What was Arthur Anderson’s role in Enron’s failure? Enron had …show more content…

In February 2001, some of the Anderson’s partners raised concerns related to Enron’s debt on balance sheet but Duncan reassured his partners. According to Wall Street Journal, one of the senior Enron executive asked Duncan to remove Bass from any review responsibility for the Enron account. Carl Bass was removed from the Enron’s case in March 2001. Later on in October 2001, Enron announced a loss of $600 million in the third quarter. (“Enron: Quality Assurance”, 2016). Enron announced that they needed to restate its financial statement for the past 5 years to account for $586 million in losses. Enron filed bankruptcy on December 2nd, 2001.
The first issue in the case Enron: Quality Assurance is lack of Internal Control. An internal control is defined as “Systematic measures (such as reviews, checks and balances, methods and procedures) instituted by an organization to (1) conduct its business in an orderly and efficient manner, (2) safeguard its assets and resources, (3) deter and detect errors, fraud, and theft, (4) ensure accuracy and completeness of its accounting data, (5) produce reliable and timely financial and management information, and (6) ensure adherence to its policies and plans.” (“Internal control”, n.d). Enron had sophisticated management control at the time of collapse. Enron’s collapse didn’t happen overnight. It revealed that for several years, Kenneth La and Jeffery Skilling, former

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