Question

Summarise the key facts about ‘financial reporting accounting fraud’ of Enron Scandal (2001) (write 500 words)

Answer 1

The Fraud: Enron’s top management contacted Arthur Andersen, JP Morgan, Citigroup and others to build a complex structure of companies for hiding illegal transaction. The bonuses were directly linked to the share price, hence leading to push the share price artificially.

Price manipulation: Enron donated large amounts of money to political parties. They made pressure on government to make changes to the law. This allowed them to take over the energy market in the USA and increase prices by over 300%.

Offshore companies: Enron created offshore companies and took big bank loans which were transferred to Enron and declared as revenue for goods that were never delivered or even possessed.

Falsification of financial statements: With the help of Arthur Andersen, Enron was able to falsify financial statements to make the company look better than it was. Andersen helped them hide huge amounts of debts on one side and avoid taxes on the other.

End of Enron: In October 2001, the SEC launched an investigation. During this investigation, they found $30 billion of undeclared debts. Just before the scandal went public, the management sold nearly all their shares and the CEO payed himself an indemnity of over 300 million.

Bankruptcy: The bankruptcy of Enron was a well planned and intentionally committed fraud which involved several banks and an auditor company