This website uses cookies to ensure you have the best experience. Learn more

Enron Scandal Essay

2766 words - 12 pages

Overview of the Corporation
Enron is a global energy corporation that was formed in 1895 in Omaha, Nebraska when Inter North acquired Houston Natural Gas (Lee, 2014). Although Enron was founded in Nebraska, the corporation decided to relocate its headquarters in Houston, Texas. Kenneth Lay who was Chief Executive Officer (CEO) of the Houston Natural Gas corporation was chosen as the CEO of the Enron Corporation and Jeffery Skilling was selected as CEO subsequent to Lay’s retirement (Enron, 2013). Enron also employed 21,000 workers in more than 40 countries (Enron scandal at-a-glance, 2002). Based on Lee (2014), the corporation produced natural gasses as the main products and it branched ...view middle of the document...

Scandal Methodology
Enron fraud case is the most well-known type of accounting scandal that is happened in 2001 (Lee, 2014). Accounting scandal or accounting fraud means a planned misrepresentation of accounting records such as sales, revenues, expenses and other factors for a profit motive include corporation stock values, gaining more favorable money or avoiding debt obligations (Accounting fraud, 2014). Lee (2014) found that Enron fraud case started in 1992, when Jeffery Skilling, the president of Enron Corporation, persuaded the federal regulators to permit Enron using an accounting method which was “mark to market”. Using the mark to market accounting, a corporation was able to record the price or value of securities daily to calculate the profit or loss of a corporation. This method was previously used by brokerage and trading companies. Therefore, using this mark to market accounting allowed Enron to count projected earnings from long-term energy contracts as current income money that may not be collected for many years. In fact that Jeffery Skilling had planned the method to inflate revenue numbers by manipulating projections for future revenue.
According to Li (2010), Enron were forced to forecast high future cash flows and low discount rate in order to create a dependable and rational profiting situation that would appeal investors in investing in the long term contract with Enron. As a result, the number of the stock prices remained high while the number of tax is relatively low which was difficult to see how Enron made money (Lee, 2014). Furthermore, there was a difference between the calculated net present value and the original value paid was regarded as the profit of Enron. The net present value that was reported by Enron may not happen during the future years of the long term contract (Li, 2010).
The other method that used in Enron fraud case was Special Purpose Entity (SPE). Special Purpose Entity is a business structure of corporation to run smaller business operations without bothering a large financial risk (Special Purpose Entity, 2014). Based on accounting rule, a corporation is allowed to remove a SPE from its own financial statements when an independent party has control of the SPE and owns at least 3 percent of the SPE. In this case, Andrew Fastow, the Chief Financial Officer (CFO), used Enron’s stock that was under SPE to borrow huge amounts of money. The usage of this money was to balance the overvalued contracts of Enron. Hence, this SPE allowed Enron to convert loans and assets burdened with debt obligations into income. Moreover, by taking over the SPE made Enron transferred more stock to SPE. On the other hand, the abundant amount of debts and assets purchased by the SPE were not reported on Enron’s financial report. It caused shareholders were misled that debt was not increasing and the revenue was even increasing (Li, 2010). These SPEs were also established to keep Enron's credit rating high, which was very...

Find Another Essay On Enron Scandal

Enron Corporation: The Real Scandal Essay

1315 words - 5 pages Most people usually work from rags to riches but, this is not the case of the Enron Scandal. In 1985 Ken Lay created Enron when he merged two companies in the Natural Gas industry. Moving into the early 90s, he aided in the selling of electricity at regular market prices. Following this initial action the US Congress approved the deregulation in the sale of natural gas. This caused Enron to be able to sell the energy at higher costs, increasing

Analysis of the Enron/Arthur Anderson Scandal

1592 words - 6 pages to what steps could and should have been taken to protect innocent victims and numerous investors from experiencing the enormous loses that resulted from this scandal. Accounting Practices at Enron Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual

Questions and Answers About the Enron Scandal

863 words - 4 pages The Enron scandal Question 1: What happened to Lay, Skilling and Fastow? Kenneth Lay created in 1985 after assimilation InterNorth and Houston Natural Gas . Later, he employed the likes of Jeffrey Skilling and Andrew Fastow, who were to be involved with him in committing gross accounting misconducts. Together with these men and many others, Lay hid huge sums of cash in debt from unsuccessful contracts and plans. This was possible through the

Ethical Accounting Failure: The Enron Scandal

1381 words - 6 pages corporations have been facing ethical failures scandals for many years. For example: One of the biggest financial scandals was the Enron Scandal. According to (Cohen, Pant, & Sharp, 1993) “the mergers and the international development of the Big Six accounting firms have created new classes of problems for their management.” (Cohen, Pant, & Sharp, 1993) There is a great need for multinational public accounting firms to distinctively consider the impact

Inside Information: The Enron scandal in 2001

2314 words - 9 pages company by using what they already have. He does mention an open and free competition in which restrictions, such as the STOCK Act, need to be lifted. If insider information is legalized, scandals involving insider trading should become eliminated or reduced in the United States. If one gathers insider information illegally, and unfortunately gets caught using it, it creates a scandal. The Enron scandal in 2001 was one of the biggest scandals in the

Auditor choice and institutional investor choice after the Enron scandal.

708 words - 3 pages document related to Enron Corporation when the company turned to bankruptcy in late 2001.Arthur Anderson receive negative reaction from the public as the effect on Enron scandal. Their share price dropped negatively after the incident, and they lost public confidence. The Arthur Anderson end up lose their good reputation and goes out of business (Azibi, Tounder, & Rajhi, 2010). The institutional investor adopts high audit quality as one of tool to

The ENRON scandal: The downfall of the ENRON corporation

1270 words - 5 pages Enron began business in 1986 as a result of the merger of two natural gas companies intent on creating the first nationwide natural gas pipeline. Enron wanted to take advantage of the newly deregulated markets for energy and become a market middleman for energy. They wanted to accomplish this by bringing together buyers and sellers of energy, in addition to delivering natural gas. But instead of simply bringing buyers and sellers together, Enron

The Fall of Enron

1041 words - 5 pages people. A reason for the downfall of Enron was the deregulation of electrical power markets which fueled the greed of Enron’s officials. They were the ones that transformed Enron from a traditional energy company into an energy broker. As I was watching the film, the first example of unethical behavior I noticed was the scandal involving the oil markets. This scandal occurred early in Enron’s history with a couple of traders placing bets on the

Enron Corp. was one of the world's largest energy, commodities and services companies

575 words - 2 pages business and a GOP tax bill that would require Enron a refund in the amount of $254 million.Problematic theories to Enron's problemsThe theories to Enron's corporate scandal start at the top with former Enron president and chief operating officer Jeffrey McMahon. McMahon stepped down before the bankruptcy filing but his name is embedded all over the sample.ReferencesDonaldson, T., Werhane, P. H., & Cording, M. (2002). Ethical issues in business


3637 words - 15 pages Enron is known as the one of the largest fraud scandals in the United States history. As a result of the investigations, the company was forced to file for bankruptcy in December 2001. In May 2006, Enron's former chief executive, Jeffrey Skilling was sentenced to 24 years in jail while the ex-chairman Kenneth Lay died of heart-attack in July 2006. The article gives an insight about the scandal and why it emerged, discussing the schemes and

The Beginning of the End of Enron

2097 words - 8 pages the activities of these SPEs during the years of 1999 to July 2001. LJM also invested in another group of SPEs, the Raptor vehicles, which was used to hedge the bankrupt broadband company. Skilling and Fastow appear to be the most active executives involved in the scandal; however, other members of Enron contributed also. Kenneth Lay, founder of Enron, was CEO of the corporation in 1985 to February 2001, and then stepped back into his CEO role in

Similar Essays

Enron Scandal Essay

739 words - 3 pages internal contracts over the related-party transactions" ("Enron Scandal"). After reading about the scandal it seems as if Arthur Andersen was being pressured by Enron's executive management to ignore all their flawed accounting principles.Overall there were several business practices that caused Enron's stock prices to increase and most of it was due to a flawed and failed accounting system.2. Why did Enron go bankrupt?Enron went bankrupt because

Accounting: Enron Scandal Essay

790 words - 4 pages The Enron Corporation was one of the world’s largest natural gas and electricity companies in the world before the bankruptcy in 2001. The Enron Company was doing excellent in stock before the huge scandal. In 2001 the company started to suffer, huge amounts of losses and their stock prices crashed. There was many people involved in the scandal, one of the main people involved was David Duncan the main accountant. David Duncan was an employee

The Enron Scandal Essay

1114 words - 5 pages The Enron scandal was mostly all about how these people that was supposed to be the smartest people in the world that made a stock company increase in so much money by lying and stealing money from customers. The company used so many ways to get their stocks up high and try to keep them there. They tried far beyond what they could happen and the company failed and collapsed at the end when Jeff skilling resigned as CEO and president of

The Enron Scandal Essay

945 words - 4 pages that there were "no issues".Sherron Watkins, an Enron vice-president, wrote an anonymous letter to Kenneth Lay setting out her fears of an impending scandal. As Enron's investments and stock turned bad, the partnerships couldn't pay up because their capital was disappearing at the same time. A huge hole had opened in the accounts.As stock slid to $33 a share, nearly two-thirds lower than a year earlier, executives decided to cope up to their