Enron 's Financial Fraud And Corporate Fraud

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.

The fall of the colossal entity called Enron has forever changed the level of trust that the American public holds for large corporations. The wake of devastation caused by this and other recent corporate financial scandals has brought about a web of new reforms and regulations such as the Sarbanes-Oxley Act, which was signed into law on July 30th, 2002. We are forced to ask ourselves if it will happen again. This essay will examine the collapse of Enron and detail the main causes behind this embarrassing stain of American history.

This paper explores the ethical dimension of the demise of Enron Corporation an reflection of author, placed in hypothetical situations. Accounting Fraud and Management philosophy will be the main discussion topics, along with the motivations of fraud. The fall of Enron can be directly attributed to a violation of ethical standards in business. This makes Enron unique in corporate history for the same actions that made Enron on of the fastest growing and most profitable corporations, at the turn of the 21st century, also bout about its destruction. This paper does not explore legal consequences, only the ethical dimension of Enron’s actions.

Enron Corporation began as a small natural gas distributor and, over the course of 15 years, grew to become the seventh largest company in the United States. Soon after the federal deregulation of natural gas pipelines in 1985, Enron was born by the merging of Houston Natural Gas and InterNorth, a Nebraska pipeline company. Initially, Enron was merely involved in the distribution of gas, but it later became a market maker in facilitating the buying and selling of futures of natural gas, electricity, broadband, and other products. However, Enron’s continuous growth eventually came to an end as a complicated financial statement, fraud, and multiple scandals sent Enron through a downward spiral to bankruptcy.

The story of Enron is one of a perfect storm--the right people in the right places with the right ideas, but the exact opposite. Moreover, it is a story about accounting fraud, deception, the ugly side of corporate culture and, most of all, greed. In entry level accounting classes, it is taught that publishing accurate financial statements and being honest in accounting practices are fundamental to maintaining a healthy business and achieving lasting success. Enron is a shining example of what happens when you choose to violate these principles. In order to fully understand what caused the collapse of the corporate "rock star" that was Enron we will discuss the people involved, the crimes they perpetrated, and the results of said

Enron was an U.S. energy-trading and utilities company that housed one of the biggest accounting frauds in history. Enron 's executives employed accounting practices that falsely inflated the company 's revenues, which, at the height of the scandal, made the firm become the seventh largest corporation in the United States. Once the fraud was detected, the company quickly unraveled and filed for Chapter 11 bankruptcy on Dec. 2, 2001. (Investopedia, 2014)

For instance, Enron that recorded as the seventh largest corporation by its market capitalization in US, averaging $90 per share and worth US$70 billion in 2000, was suddenly collapsed in late 2001. Morrison (2004) asserts that the cause of the collapse is the largest corporate fraud and audit failure. Then, it can be understood that the massive corporate fraud caused by fraudulent financial reporting have contributed to a very sharp decline in the US stock market.

success and so took a risk into a market that had not yet fully taken

Since then, Enron has become a symbol of corporate fraud and corruption. With the bankruptcy of Enron, undoubtedly, the investor received a lot of lost, especially those who have a large number of Enron stock. In accordance with US law, after filing for bankruptcy protection, Enron 's assets will give priority to pay taxes, repay bank loans, pay staff salaries. After paying all these, the company is already worthless and the investors certainly lose everything. After Enron’s accounting fraud, the government created the Sarbanes -Oxley Act of 2002, a United States Federal law that requires top management must individual certify the accuracy of the financial information. Even though the creation of Sarbanes- Oxley Act ensures the credibility of the published financial reports, the public trust in the accounting and assurance industry has decreased significantly.

The purpose of this article is analyze the downfall of the Enron Corporation and how the collapse of Enron Corporation consequence affected the United states financial market. Enron Corporation was the seventh largest company in the United States, and had the biggest audit failure. In this Research paper, it describes the reason of Enron Corporation collapse, including details of the internal/ external management, accounting fraud, and conflict of interest. Enron is the largest bankruptcy in America history!

It is hard to believe Enron, the seventh largest leading corporation in electricity, natural gas and communications based in United Stated filled for Chapter 11 bankruptcy in December 2001. The company with claimed revenues of $101 Billion in 2000 finally ended up when investigations revealed that it had inflated its earnings by “hiding its debt, committing institutionalized, systematic and well-planned accounting fraud”. The scandal is the most significant corporate collapse in the United States since the failure of many savings and loan banks during the 1980s. (1)

In October of 2001 it was revealed that Enron’s financial condition was only sustained by systematic and creatively planned accounting fraud. Enron’s stock price dropped from $90 per share to $1 a share, with shareholders loosing around $11 billion. Enron found to have a loss of $586 million in the previous five years after reviewing financial statements. Enron fell to bankruptcy on December 2, 2001. The Enron scandal is recognized as the largest bankruptcy reorganization in American history at that time and also the biggest audit failure with the termination of Arthur Andersen, one of the five largest audit and accountancy partnerships in the world. (Yahao, 2010) In this occurrence

Enron was an admired company prior to 2000 because at that time it surfaced as a frontrunner in the deregulated energy market, making it possible to sell energy at higher prices, thus significantly increasing its revenue. The company, through efficient management team, has built leading businesses in energy trading and international energy asset construction. The company has managed to maintain high return from its investments through ideal placement of resources by creating long term and fixed price contracts with clients that guaranteed stable

The story of Enron begins in 1985, with the merger of two pipeline companies, orchestrated by a man named Kenneth L. Lay (1). In its 15 years of existence, Enron expanded its operations to provide products and services in the areas of electricity, natural gas as well as communications (9). Through its diversification, Enron would become known as a corporate America darling (9) and Fortune Magazine’s most innovative company for 5 years in a row (10). They reported extraordinary profits in a short amount of time. For example, in 1998 Enron shares were valued at a little over $20, while in mid-2000, those same shares were valued at just over $90 (10), the all-time high during the company’s existence (9).