The Scandal Of The Enron Scandal

Ray Bowen, a Citigroup banker at the time and now Enron's chief financial officer, once asked Mr. [Andrew Fastow] about a batch of complex equations that filled a whiteboard in the conference room next to the Mr. Fastow's office. "You can't tell me you understand those equations," Mr. Bowen commented to Mr. Fastow. Mr. Fastow replied: "I pulled them out of a book to intimidate people."

Unfortunately, all those efforts have not been vindicated because of the following reasons: Accounting did not cause the recent corporate scandals such as Enron and WorldCom. Unreliable financial statements were the results of management decisions, fraudulent or otherwise. To blame management’s misdeeds on fraudulent financial statements casts accountants as the scapegoats and misses the real issue. Reliable financial reports rely to a certain extent on effective internal controls, but effective internal controls rely to a large extent on a reliable management system coupled with strong corporate governance. when management deliberately or even unlawfully manipulates business processes in order to achieve desirable financial goals and present untruthful financial reports to the public, accounting systems are abused and victims rather than perpetrators.

More than a decade ago, one of the most commanding corporations in modern American history filed for bankruptcy. Enron, a seemingly invulnerable company would eventually provoke sweeping changes in regulation that controls the management and accounting of public companies even to this day. The Enron scandal has come to be known as one of the prime audit failures of all time and serves as a classic example of corporate greed and corruption. However, for the generation that watched in horror as corporations such as Enron fell along with the stock market, this scandal is slowly becoming just that: history. And for the newer generation of college students like me, it is almost ancient history. Despite the time that separates us from this scandal, it has never been more important to remember the lessons learned and best understand how the adoption of The Clarkson Principles can guide our careers in the business sector.

In my opinion the Enron scandal was one of the worst in American history. While we could argue many facets of the scandal the main talking point in my mind stems from the sheer level of corruption they managed to obtain. Which begs the question how far would the corruption have went had it not been for an insider blowing the whistle? It is estimated that Enron hid approximately 51.2 billion dollars worth of debt. They achieved this by utilizing several ingenious but unethical and illegal methods. However, the key to this scandal was the key involvement by the company which was supposed to be the watchdog. This is one of the major reasons SOX was created by the federal

Enron was one of the largest energy, commodities, and services company in the world. It was founded in 1985 and based in Huston, Texas. Before its bankruptcy on December 2, 2001, there are more than 20,000 staff and with claimed revenues nearly $101 billion during 2000. Enron was the rank 16 of Fortune 500 in 2000. In 2001 it revealed that Enron’s financial report was planned accounting fraud, known since as the Enron scandal. In the Enron scandal, Enron used fraudulent accounting practices to cover its fraud in reporting Enron’s financial information. Its purpose is to hide the significant liabilities from its financial statement. Enron tried to make its financial report with great revenue to attract more people to invest it. It continued to spread the information that advance its stock price continued to rise. In fact, Enron was with a large amount of liabilities and loss. The key executives of Enron continually spread the fake information of Enron’s financial report and kept encourage the people to buy its stock. They knew the real financial condition of Enron. They knew the outlook of Enron is not good, so they sold their stocks secretly to generate profit before the company bankruptcy. After the people knew that Enron had a large amount of loss, the stock price was drop from 90 dollars per share to just pennies. In addition, the bankrupt of Enron had a great effect in the California energy market. The bankrupt of Enron made California had a shortage of electricity

Enron was a business conglomerate during the 1990s, formed by the merger of smaller oil and energy companies. Houston executives Kenneth Lay (Chairman), Jeffrey Skilling (chief executive officer (CEO) and Andrew Fastow (chief financial officer (CFO) parlayed their new mega-company into a favorite Wall Street company, bragging of record profits with negligible losses. During the 1990s, the three senior executives changed Enron from a traditional gas and electricity company into a $150 billion energy corporation. For instance, from 1998 to 2000 only, Enron’s returns rose from approximately $31 billion to over $100 billion, making the company to be the seventh biggest conglomerate of the Fortune 500. Unidentified to nearly everybody, this picture was the result of one of the largest swindles in financial history (Ferrell, Fraedrich & Ferrell, 2013).

Enron was a corporation that reached heights unknown, only to watch it fall apart from the inside out based on a foundation of falsehoods and cheating. Enron established a business culture that flourished on competition and was perceived in society as an arrogant corporation, mainly because of its corporate leadership. The fairytale of Enron actually ended as a nightmare with it destroyed by one of America’s largest bankruptcies in history. The demise of Enron impacted the livelihood and futures of numerous employees, their pensions, and in due course impacted Wall Street in a significant way. Even people today are amazed at how such a powerful company met its demise so rapidly. Enron’s end was a product of greed when certain executives of Enron were not eager to accept the failure of their company. The company utilized mark-to-market accounting that detailed the projected impending profits from a long-term deal (Lawry, 2015, p. 28) The results of the deals did not generate revenue as anticipated, but tremendous loss instead. This resulted in Enron accumulating enormous amounts of debt that they attempted to keep classified from the public. Ultimately the truth came to fruition.

Enron company was created in 1985 out of Texas. The company was in the business of natural-gas pipelines. Eventually they merged with InterNorth and their business shifted towards other natural gas productions. They began to trade natural gas and electricity, which resulted in their biggest growth driver for their company. Enron was not only top in the country, but in the world they were known for their business’s success. In the year of 2000 they hit number seven on the fortune 500 list. At this point, Enron was also the sixth largest energy company in the world. But, the company quickly became the largest bankruptcy in the United States history. Humble beginnings of this company were not so humbling to the auditors and investigators soon after they uncovered their overstated financial statements.

In light of the recent scandals that rose around big multinationals such as Enron and WorldCom, it has become evident that reform in the traditional corporate operations and objectives was to be encompassed in the organisations corporate strategies. Indeed throughout the years, companies main objectives were defined primarily as being economic objectives, Multinationals developed with sight of profit maximisations regardless to the other incentives, Friedman considered that to be the foundation for a well-managed company, it was further considered that the financing of any other sort of social corporate activities rather unnecessary. The expenses were regarded as expenditures for the owners and investors; this was a time where shareholders rights were regarded as conflicting with other constituents namely the employees, creditors, customers or the community in general. However this interpretation is seen as rather inadequate due to the nature of the amalgamated relation between both constituents. Stakeholders in modern corporate doctrine are considered as a core apparatus for the well functioning of a business. It is however often argued that the only way for a corporation to achieve better results and maximise its profits is to include other people in the process, individuals or organisations with direct or indirect interest in the well performance of the company, that is the reason why modern regulations and codes include a number of stakeholders other than the

Enron Corporation was an energy company founded in Omaha, Nebraska. The corporation chose Houston, Texas to home its headquarters and staffed about 20,000 people. It was one of the largest natural gas and electricity providers in the United States, and even the world. In the 1990’s, Enron was widely considered a highly innovative, financially booming company, with shares trading at about $90 at their highest points. Little did the public know, the success of the company was a gigantic lie, and possibly the largest example of white-collar crime in the history of business.

Accounting scandals have happened in numerous companies. In one major case, the firm filed for bankruptcy, and many of its workers lost their jobs, savings, and investments from stocks. This major epidemic happen at Enron, an energy firm stationed in Houston, Texas founded by Kenneth Lay in 1986 (Frontain). On December 2, 2001, the Enron Corporation, an apparently strong and booming business, fell to an all-time low by shocking the world when it filed for bankruptcy protection. Many people were left unemployed and without their savings. Because of this scandal, numerous effects were left on the accounting profession since the scandal was traced to the company’s financial reports, accountants, and auditors (Buckstein Part 2, p.1).

An American energy company based in Houston, Texas in 1985, was the world’s leading electricity, natural gas, communications and paper companies before it bankrupted in 2001. Its annual revenues rose from 9 billion dollars to 100 billion dollars. At the end of 2001 Enron’s stock price dropped from $90 to $1 per share, which caused shareholders lose $11 billion and finally resulted in $586 million in losses. It was one out of the five largest audit and accountancy partnerships in the world which undoubtedly was the biggest audit failure.

This is a movie or rather a documentary on the downfall of Enron which was the seventh largest company in the United States. It took 16 years for them to rise from 10 billion dollars of assets to 65 billion dollars of assets and had managed to go bankrupt within a period of 24 days in 2001. This led to the question of whether Enron is amidst an expensive scandal.

It is a case study of Enron in which company is unable to make right financial statements. This company is unable to prepare balance sheet with present assets and add by self assets to overcome the failure. It makes financial reports to hide its debts. It was 7th largest company that fails in providing reports to investors. Its scandal in history especially in America. The case study is all about the failure of Enron, and writer explains the reason which leads to its failure. It was a big public company.

Most of the world has heard of Enron, the American, mega-energy company that “cooked their books” ( ) and cost their investors billions of dollars in lost earnings and retirement funds. While much of the controversy surrounding the Enron scandal focused on the losses of investors, unethical practices of executives and questionable accounting tactics, there were many others within close proximity to the turmoil. It begs the question- who was really at fault and what has been done to prevent it from happening again?