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Analysis And Reaction Regarding The Enron Case

1402 words - 6 pages

I. IntroductionEnron Corp. was one of the world's largest energy, commodities and services companies before its Chapter 11 bankruptcy filing, it marketed electricity and natural gas, delivered energy and other physical commodities, and provided financial and risk management services to customers worldwide. Based in Houston, Texas, Enron was formed in July 1985 by the merger of Houston Natural Gas and InterNorth of Omaha. Kenneth Lay became Enron's CEO in February 1986. In 1989, Enron began trading natural gas commodities. The company eventually became the largest merchant in North America. Enron had 21 thousand employees, operated a 25 thousand-mile gas pipeline system. It was listed as the seventh-largest company in the U.S, with a revenue of nearly 101 billion of dollars. Its bankruptcy occurred on December 2, where Enron had listed 24.7 billion dollars in assets.Enron owned power plants, water companies, gas distributors and other units involved in the delivery of services to consumers and businesses. The Fall of Enron is about money, power, secrecy and a world of people with the highest connections from the Wall Street Journal to the White House. It is also about the people not doing the right things, to put it at its gentlest, and about others losing their life savings.Enron's Accounting Issues - What Can We Learn to Prevent Future Enrons is a prepared testimony by Bala G. Dharan, a CPA and a PhD professor of management in Rice Univeristy. This article was presented to the US House Committee on energy and Commerce and its aim is to give into the minds of the listeners and readers an objective view of what really went wrong in Enron specifically in its accounting anomaly. It discusses terms and events and what could have been done to avoid what happened. It explicitly shows what Enron did that lead to its downfall.The article is concentrated and aimed not to repeat the said case. It presents the loss of investor trust, the use of pro-forma earnings, special purpose entity accounting, hiding of debt, hiding of poor-performing assets, earnings management, quick execution of related party transactions at desired prices, mark-to-market accounting and recommendation to Enron's case.II. Analysis and ReactionThe collapse of energy giant Enron is the largest bankruptcy and one of the most shocking failures in United States corporate history. While everybody was investing and buying stocks from the company, thinking it was a very good one. Enron wasn't being loyal and was cheating her way up. The firm's success turned out to have involved an elaborate scam. Enron lied about its profits and stands accused of a range of shady dealings.When the firm reported its third quarter results in October 2001, it revealed a large black hole that sent its share price tumbling. Enron admitted it had inflated its profits, and filed for bankruptcy on December 2, 2001. To disguise its true balance sheets, the firm used complex financial partnerships to conceal debts....

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