The Enron Scandal

Abstract

This research paper discusses the Enron Scandal that took place in 2001 in the United States of America. This is the most significant corporate scandal in the history of the United States. The company which was the king of the stock market got bankrupt due to inappropriate management and accounting practices in 2001. This paper discusses the issues and problems faced by the company that led it to bankruptcy. It sheds light on the wrong doings of the company and its employees. In the final part of the report, the tools and strategies used by the company to cover the losses suffered by its creditors are discussed. A few recommendations are also discussed in the end in order to improvise the regulatory system of the trading market in United States.

Contents

Abstractii

Introduction1

Issues and problems faced by the company1

Auditing Issues2

Accounting Issues3

Issues of Corporate Governance4

Derivative Issues4

Pension Issues4

What the company did wrong5

What are they doing or did to fix it6

What are/were the strategies and tools used by the company7

Conclusion8

Recommendations8

References11

The Enron Scandal

Introduction

Enron was an energy firm based in Houston in the United States. It was founded by Kenneth Lay. The company transformed itself from an obscure gas pipeline concern to the largest energy trading organization worldwide in its life span of sixteen years. Enron became an intrastate and interstate natural gas pipeline organization with around about 37,000 miles of pipe. Enron was credited largely by establishing market trading in energy. It allowed energy to be traded in the same way as other commodities such as oil (Healy & Palepu, 2003).

Enron remained on top of the stock market for quite a while. The company experienced a meteoric rise. In the year 2000, it ranked 22nd in the 100 best companies list of Fortune in America. It was a multinational company. It had offices in Japan, Australia, Europe and South America. Additionally, Enron set up itself in the United Kingdom, as the first foreign company, to start construction of a power plant, after the industry of electricity got privatized in UK. The company had around 21,000 employees by August 2001. In the year 2001, when Enron was at its peak of success, the company got bankrupt all of a sudden. There were many reasons including unethical management and accounting practices that led to the demise of the company. The Enron scandal became the most significant corporate collapse in the US since the failure of several loan and savings bank in the period 1980s.

Issues and problems faced by the company

On 14th August 2001, Kenneth Lay became the Chief Executive Officer of the company due to Jeff Skilling's resignation citing personal reasons. The departure of Skilling was prompted by issues over Enron's bad management and bungled accounting (http://www.efham.net). In mid august 2001, Corporate Development Executive Sherron Watkins wrote a letter to CEO in order to warn him of irregularities occurring in accounting that had the potential to pose a threat to the organization. This development was a big shock to the investors of the company who started to ...