Enron Scandal

Enron Scandal

Introduction

Enron was established in 1985. The founder of Enron was Kenneth Lay. Enron was formed by the merger of InterNorth and Houston Natural Gas. Enron was a American based energy company which was established in Houston, Texas. After some years of the establishment of Enron, Jeffrey Skilling was hired in the organization. Jeffrey Skilling developed a pool of executives who aimed to hide billions in debt from failed projects and deals. They did this through the use of special purpose entities, accounting loopholes and poor financial reporting.

The executive involved in this fraud misled the board of directors. They also pressurized Anderson to ignore the issues. The Enron Scandal was recognized in October, 200. This scandal leads to the bankruptcy of Enron Corporation. This scandal was the considered as the largest bankruptcy reorganization in America at that time. Enron was recognized as the biggest audit failure at that time.

Problems in the Enron Corporation Scandal

Enron's financial statements did not demonstrate its finances and operations clearly with the shareholders. The complex business structure and unethical practices of the Enron Corporation showed that the executives might have accounting limitations. These accounting limitations allowed them to modify the balance sheets and misrepresent earnings. These practices as a result, showed a favorable picture of the company's performance to the market. The company later experienced bankruptcy when these unethical practices were identified. Some of the significant issues that became the cause of the company's bankruptcy are discussed as follows.

Truthfulness

The first cause of the downfall of Enron Corporation was the lack of truthfulness about the health of the company by the management of the company. It was believed by the senior executives of the organization that the Enron Corporation should be the best at its operations to maintain the reputation of the organization. The delay in the sale of the stocks in the market became one of the causes of lack of truthfulness by the management. The shareholders were only able to gain information about the CEO's sale of stock before February 14, 2002. The delay could have been arising because the employees could not have been informed about the stock sale. These were the reasons why the extent of truthfulness of Enron Corporation was harmed.

Interest

Another cause of the downfall of Enron Corporation was the lack of independent management monitoring and interest by the board of directors of the Enron Corporation. It has also been ...