The Enron Corporation Scandal

Abstract

The Enron scandal was brought out in the year 2001, in October, and this had developed to the bankruptcy of US giant Enron, and the disintegration of Arthur Andersen, who was amongst the five audit companies of Enron. Likewise, being the largest bankrupt organization in American history, it was credited with major failure of the auditing companies. A number of executives from Enron were accused of a number of positions and were after the legal trail, the court had sentenced all of them to prison. The U.S. District Court had discovered that Chief auditor of Enron, Arthur Andersen, was equally guilty in the whole scandal, as an auditor can detect the financial manipulations in a given firm. However, during that time, the Court had made a declaration regarding the fate of Arthur Anderson. The reputation of the company was destroyed and it had lost a huge majority of its customers. The company was shut down for good. Shareholders and employees of Arthur Anderson LLP had managed to receive very small returns in trials, in spite of losing billions of dollars in a fall of stock prices and pension. The purpose of this paper is to analyze the factors and reasons behind the Enron corporate scandal, regarding financial manipulations, which led to Enron's downfall.

Table of Content

Abstractii

Introduction1

Discussion1

Enron's History2

Mark-to-market accounting3

The competitive Culture4

Arthur Anderson6

The financial structures7

Fall of Enron8

Conclusion10

References12

The Enron Corporation Scandal

Introduction

Ten years ago, Enron Corp. collapsed in what was then the largest bankruptcy in U.S. history. Given the current financial turmoil, it is easy to forget how the collapse and the bankruptcy dominoes, that fell thereafter, shook market confidence. Congress swiftly passed the Sarbanes-Oxley Act in response. Enron was then followed by a housing and financial crisis whose economic ramifications dwarfed the previous crisis. Again, the government responded by amplifying regulatory and enforcement efforts through another statute, Dodd-Frank.

While much has been written about the details and ramifications of Sarbanes-Oxley, Dodd-Frank and the other regulatory and fraud enforcement measures of the past decade, this anniversary provides an opportunity to pause and look back at the unprecedented changes in corporate governance, bookended by responses to two very different economic crises. The government's separate but related responses paved rugged terrain of corporate-fraud regulation and enforcement.

Discussion

In the late 90's Enron was an extremely successful energy company, peaking 7th on the Forbes 500 and winning “America's Most Innovative Company” for six consecutive years and showing high growth and steady profits. But it turned out the success was only on paper made possible by aggressive creative accounting (Cruver 2002, p. 41). The company was actually lacking liquidity, held large debts and losing money. When Enron finally declared bankruptcy in late 2001 it was the biggest bankruptcy with $ 62 billion of assets.

Enron's apparent success and ultimate fall were based on a lot of factors (Cruver 2002, p. 41). In this report, we have decided to cover what we think are the major factors and the most concerning aspects. These are Enron's aggressive corporate culture, its non-independent auditor, ...