Enron What Happened

In 2001, Enron, the largest energy company in the U.S., collapsed after a vast creative-accounting scandal. Enron practiced a type of accounting called mark-to-market practice which it used to hide losses. Mark-to-market accounting it not illegal on its own but it was used improperly by Enron. The CFO and CEO of Enron were able to write off any losses to an off-the-book balance sheet and made the company appear financially healthy (Seabury, 2008). Investors lost $74 billion while thousands of employees lost their jobs and

This event was unprecedented. The seventh largest company in the United States disintegrated from an annually profitable company in business for over sixteen years to a company claiming to be bankrupt over a period of a few months (O’Leary). Ultimately, fraudulent accounting and misstatements of revenues and debt obligations orchestrated by the CEO, CFO, and other senior managers were to blame. These revelations roiled stakeholder trust in public companies' financial reporting, accounting methodology, and overall transparency. In addition to Enron’s admissions, their accountant and auditor, Arthur Andersen LLP, was determined to have conspired to assist in the inflation of stated profits mainly by not disclosing Enron's money-losing partnerships in the financial statements (PBS). Arthur Andersen eventually surrendered the practices’ CPA licenses in the United States after being found guilty of criminal charges relating to the firm's handling of auditing for Enron

In the summer of 2001, questions began to arise about the integrity of Houston energy company Enron’s financial statements. In December, they filed for bankruptcy as their fraud came to light and the United States government froze all of their assets and began prosecuting their executives and their external auditing firm Arthur Anderson (Franzel 2014). Enron was not the only company using accounting loopholes to mislead stockholders though; Global Crossing, Tyco, Aldephia, WorldCom, and Waste Management all underwent investigation for similar

Even the small profits reported by Enron in 2000 were eventually determined to be only a illusion by court-appointed bankruptcy examiner Neal Batson. Batson’s report reveals that over 95% of the reported profits in these two years were attributed to Enron’s misuse of MTM and other accounting techniques. But while financial analysts could not be expected to know that the company illegally manipulated the earnings, the reported profit margins in 2000 were so low and were declining so steadily that they should have merited ample skepticism from analysts about the company’s profits.

Imagine trusting your hard-earned money like your retirement savings to a financial adviser or Certified Public Accountants (CPA) only to lose it all in a fraudulent Ponzi scheme. In today’s world of business many organizations, financial planners and accountants are in the news due to the financial ethical breaches that have affected their customers, employees, and the general public. A CPA has to be responsible for their audits and take any punishments as a result of their mistakes, incompetence or illegal actions. CPAs are expected to have integrity in their work,

This would be led largely by the enormous profitability experienced by swelling corporate entities and multinational conglomerates. And at the height of this period of economic dynamism, it did appear that these corporate entities were leading the charge toward a new national prosperity. Sadly, the decade immediately thereafter would prove much of this unbridled success to be manufactured and much of the profit to be totally false. Faulty accounting practices would be revealed as a most insidious culprit as a mountain of corporate scandals became apparent in the early 2000s. Certainly, none of these accounting scandals was quite as visible as the collapse of Enron and its accounting partner, Arthur Andersen. The events of 2002 would begin the uncovering of a world of malfeasant practices and would demonstrate the need for far greater transparent, oversight and legislative intervention. The discussion here considers the accounting system at Enron and how this produced an environment where fraud, embezzlement and deception were a part of the company culture.

SOX established the Public Company Accounting Oversight Board (PCAOB) to regulate the audit industry to oversee accounting professionals who provided independent audit reports for publicly traded companies (SEC). Key responsibilities include: registering public accounting firms and establishing audit, quality control, ethics, independence, and other standards relating to public company audits (SEC). Conducting inspections, investigations, and disciplinary proceedings of registered accounting firms, as well as enforcing compliance with Sarbanes-Oxley as a whole (SEC) also falls under PCAOB’s responsibility. SEC penalties have increased considerably in the recent years in addition to increased levels of enforcement activities.

The use of special-purpose entities (SPEs) contributed to filing of bankruptcy by Enron, the largest in corporate

As competition increased and the economy started to plunge in the early 2000s, Enron struggled to maintain their profit margins. Executives determined that in order to keep their debt ratio low, they would need to transfer debt from their balance sheet. “Reducing hard assets while earning increasing paper profits served to increase Enron’s return on assets (ROA) and reduce its debt-to-total-assets ratio, making the company more attractive to credit rating agencies and investors” (Thomas, 2002). Executives developed Structured Financing and Special Purpose Entities (SPE), which they used to transfer the majority of Enron’s debt to the SPEs. Enron also failed to appropriately disclose information regarding the related party transactions in the notes to the financial statements.Andersen performed audit work for Enron and rendered an unqualified opinion of their financial statements while this activity occurred. The seriousness and amount of misstatement has led some to believe that Andersen must have known what was going on inside Enron, but decided to overlook it. Assets and equities were overstated by over $1.2 billion, which can clearly be considered a material amount (Cunningham & Harris, 2006). These are a few of several practices that spiraled out of control in an effort to meet forecasted quarterly earnings. As competition grew against the energy giant and their

Needed for the Houston office of Andersen, an audit partner that understands the role of being a "public watchdog" with "ultimate allegiance to the creditors and shareholders" . Arthur Anderson abandoned its roles as independent auditor by turning a blind eye to improper accounting, including the failure to consolidate, failure of Enron to make $51million in proposed adjustments in 1997, and failure to adequately disclose the nature of transactions with subsidiaries . Another example is Lord Wakeham joined Enron as a non-executive director in 1994 and also sat on Enron's audit and compliance committee. In addition, Andersen also provides internal audit service to Enron, which in fact impact

The scandal of Enron in 2001 lead the company to the bankruptcy. Enron is the largest bankruptcy reorganization in American history at that time. Undoubtedly, Enron is the biggest example of the audit failure. It is ever the most famous company in the world, but it also is one of companies which fell down too fast. In this paper, it describe the reason why Enron became an admired company in the world, the story of Enron 's rise and fall, the issues of internal and external auditing in Enron, the breaches of accounting and ethics that carried by Enron.

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).

Executive Summary……………………………………………………………..3 (I) Introduction to the Enron case and the organizations involved……. 5 Background information & industry…………………………………………….. 5 Organizations and officers involved……………………………………………..6 Accounting firm and partners involved………………………………………….8 Enron’s industry………………………………………………………………….. 9 Enron’s injured parties…………………………………………………………… 10 (II) Enron’s accounting fraud and misrepresentation……………………. 11 Explanation of the fraud…………………………………………………………. 11 Damages incurred…………………………………………………………………12 Final outcome of the Case………………………………………………………. 13 How the

In the history of accounting, "Enron scandal" means more than just a legend of accounting managements. It exceeds every other accountings deceit, because the need to secrete its real economic situation was not just a matter of hiding failures borne out of unsuccessful business protrusions. In our summary of the ten major accounting scandals that altered the business world, Enron led the set of white collar crimes committed out of pure gluttony (McLean & Peter, 2003).

The rise and fall of the high profile businesses such as WorldCom, Parmlat, Tyco, and Enron has been a topic of many debates and researches among the investors, regulators, academics, and government in recent years. Enron was one of the biggest failure in the history of American mercantile capitalism therefore it had an impact on the financial markets because it caused a lot of loss to the insurance companies, banks and some pension funds that had been directly invested in Enron. Failure of this giant corporation made people think about the measures that could