ENRON CORPORATION

Enron Corporation

Enron Corporation

Introduction

Enron started as a Natural Gas Pipeline Company in 1985 as Houston Natural Gas and InterNorth merged (Thomas, 2002). It became a real trading powerhouse as it started trading energies and launched into new markets. At the end of 2001 it was revealed that its reported financial condition was sustained substantially. Enron had indulged in a financial scandal, involving itself and its accounting firm. The irregular accounting practices, including manipulating stock prices, caused Enron to have to file bankruptcy in December of 2001 (Thomas, 2002). The scandal is the most significant corporate collapse in the United States since the failure of many savings and loan banks during the 1980s (Hanson, 2002).

Analysis

Among the many reasons were the lack of attention shown by members of the Enron board of directors to the books financial entities and the lack of truthfulness by management about the health of the company and its business operations (Hanson, 2002). The firm's senior managers had engaged in fraud for an extended period through a scheme in which partnerships owned by the managers could receive payment for goods and services never provided to Enron. Enron's executive team was trying to create an enterprise, which would increase wealth among their shareholders. However, when it revealed that their stock prices were less desirable, certain aggressive accounting measures were required. Arthur Andersen, auditor and consultant to Enron, helped to make Enron's shares look more favorable. Andersen knowingly certified false financial statements as accurate. Enron executives even arranged financial transactions with leading investment banks in order to remove unprofitable investments from Enron's financial statements (Gibney, 2008). Arthur Anderson participated in the fraud because the firm did not want to risk losing lucrative consulting contracts from Enron, which created a conflict of interest situation.

The executive team began to rely on an increased amount of new capital, but had to conceal the risks to new investors. Once Enron began this new type of accounting operation, the need to increase this type of deception increased. Enron wanted to make sure they kept moving forward at all costs (Gudinkunst, 2002). In some ways, the culture of Enron was a primary reason for the fall of Enron. Their senior executives believed Enron had to be the best at everything that it did and that they would protect their reputation as the most successful executives in the U.S. When some of ...