Question

Lessons learned from Enron bankruptsy

Answer 1

Enron bankruptsy case -

Enron was a energy company based in houstan America, which was making profits for several of years. After continuning with profits in early 90's, they changed their( Enron management) strategy in market and acquired several loss making firms around the and they tried to make them profitable,some of them were brought back to profitable paths by Enron which was holding these loss making companies.

But they had acquired number of firms with huge losses which costed them in terms of their own reserves. Finally in late 90's, they had opinion that the enron could not saved from liquidation, hence they indulge with Aurther & Anderson (Auditor of Enron Inc). The management of Enron started to manipulate the accounts of enron such as overstating the profits, overstating the assets, to maintain the perception of profit making compay in the market.

They had also raised finances based on thier manipulated financial statements. Finally in 2000 some of the investor had filed lawsuit against company and inquiry was conducted. In inquiry it was found many of executives along with auditors of company were involved in such scam.

Lessons learned from Enron-

• Companies should not be allowed to be managed by only executive directors. Participation of Independent become more vital after this vase of Enron.
• The regulatory bodies must be more aware about possible frauds.
• Corporate governance reports compliance should be checked.
• Investor should also analyse the growth curve of company befor investing into any company.
• Fillings with respect to liquidity and solvency should be made madatory.
• A high quality Auditing standards should be instituted for all companies.
• The Auditors must be held more responsible about any possible fraud by enacting any specific Law.
• Others measure of Sarbans and Oxly must be followed.

After this scandal, the governments of several countries realised to have particular provision with respect to appointment of adequete no. Of Independent Directors on the board.

This topic is so much vast that can be continued till days.

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