What We Can Learn From Enron

624 Words Jan 6th, 2018 3 Pages
In 2001, Enron Corporation of Houston, Texas, one of the largest corporations in the world, dramatically reduced their shareholder's values by thousands of dollars. Much of their stock dropped and many people lost much, if not all, of their money. On December 2, 2001, they filed for bankruptcy and became the largest company to do so.
Investigations revealed that Enron had been complicated in fraud and in misleading the public whilst not doing its duty. Several organizations such as the SEC, the Financial Accounting Standards Board (FASB), and the American Institute of CPAs (AICPA) have also been criticized for failing to clarify the GAAP rules and for showing their connection to special-purpose entities (SPEs), of which Enron is a kind.
Benston & Hartgraves' (2002) essay "Enron: what happened and what we can learn from it" demonstrated several accounting and auditing issues that they say resulted in Enron's web of failures.
The errors are the following:
Although Enron did deliberately practice subterfuge, Benston & Hartgraves' (2002) hold the US GAAP, as structured and administered by the SEC, the FASB, and the AICPA, to be primarily responsible for Enron's shortfalls. Enron followed accounting requirements for consolidations of SEC's. By doing this, they omitted liabilities from their balance form and this is what primarily led to their accounting errors and subsequent debacle since their auditing…
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