Question

Look up information from the ENRON Case and discuss it in detail.

Answer 1

The Enron scandal, publicized in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnership in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was cited as the biggest audit failure.

Enron was formed in1985 by Kenneth Lay after merger Houston Natural Gas and InterNorth. Several years after , when Jeffrey Skilling was hired, he developed a staff of executives that- by the use of accounting loopholes, special purpose entities, and poor financial reporting - were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron's bord of directors and audit committee on high-risk accounting practices, but also pressured Arthur Andersen to ignore the issues.

What went wrong-

Enron was deceitful in four main areas:

1.Enron managers manipulated the intent and purpose of using Special Purpose Entities (SPE's) by using them as vehicles to hide debt and manipulate company's revenue and earnings.

2.they used mark-to-model accounting which essentially let the company estimate - and book - large profits when contracts were initiated.

3.Senior Enron executives, such as CFO Andy Fastow, were principles in many of the SPE's, not only presenting a material conflict of interest, but also enriched themselves in the process.

4.Enron posted large amount of its stock as collateral to back the financing of many of the SPE's making the entire financial structure of the firm vulnerable to a material decline on Enron's stock price.