The Collapse Of Enron And Enron

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Two organizations that will live on in infamy in the business world are World Com and Enron. These names are synonymous with the largest corporate scandals in US history. Their failure to live by ethical and moral codes resulted in bankruptcy, large financial losses to employees and shareholders as well criminal penalties. Additionally, these deviations from ethical behavior from several related parties shined a light on the accounting profession and resulted in several changes in the industry that would strengthen ethical standards and make the accounting industry more reliable. Below is an analysis of the Enron and WorldCom downfalls, with a focus on the ethical and regulatory issues surrounding each organization. Enron The fall of…show more content…
The business world was amazed with how well the company was doing and its innovative business practices. They were even recognized by Fortune Magazine as “The Most Innovative Company in America. Over the next several years, Enron grew and their stock significantly outperformed market expectations. This resulted in extreme pressures to maintain this success and ultimately resulted in the downfall and bankruptcy of Enron in 2001. The accounting scandal committed by Enron is somewhat complex and involves many serious problems, but at a very high level, it stemmed from a few key areas, relating to improper financial reporting and internal and external audit issues. The major financial reporting issues of Enron relate to the accounting treatment of and Special Purpose Entities (SPEs) and Volumetric Production Payments (VPPs). Special purpose entities are companies that are created to help the main company manage risk. This type of entity should be created by outside investors, who are independent of the main organization. Unfortunately, Enron did not follow accounting rules as it related to SPE’s and made multiple deals that were not considered arm’s length transactions, including some where employees of Enron were managers of the SPE’s. Some of the deals would not be favorable to the SPE’s, however, they resulted in dramatic increases to the

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