The stock markets immediately responded to the restatement and the stock price dropped to less than $10 a share (Thomas, 2002). Enron and Dynegy announced the merger agreement of $7.8 billion which would have created Dynegy Corp, where 64% owned by Dynegy and 36% owned by Enron on November 9, 2001 (Enron Fast Facts, 2015). Dynegy terminated merger agreement with Enron on November 28, 2001 due to Enron’s lack of full disclosure of its off-balance-sheet debt. This immediately downgraded Enron’s rating to junk status (Enron Fast Facts, 2015). Enron’s stock price had dropped closely to zero, 26 cents per share on November 30, 2001 (Thomas, 2002). It only took a year for Enron to collapse from its highest point. Enron filed for Chapter 11 protection …show more content…
While Enron was the complicated fraud, WorldCom fraud was the simplest one to commit. WorldCom which is now known as MCI and acquired by Verizon Communication since 2006 was founded in 1983 to create a discount long-distance provider. The company grew very rapidly in the 1990s because of several large acquisitions (Beresford, Katzenbach, & C.B. Rogers, 2003) WorldCom completed 3 mergers in 1998 and one of the merger was the acquisition of MCI Communications Inc for $40 billion, the largest merger at that time. WorldCom also merged with Brooks Fiber Properties Inc for $1.2 billion and CompuServe Corp for $1.3 billion (The rise and fall of WorldCom, 2008). WorldCom announced the merger with Sprint Corp. in 1999 and its shares’ price went up for more than $64 but, the merge was blocked by regulators in both the U.S. and Europe because they concerned that it would create a monopoly in 2002 (The rise and fall of WorldCom, …show more content…
Rogers, 2003). These accruals were supposed to reflect the estimate line costs and other expenses that WorldCom had not yet paid (Beresford, Katzenbach, & C.B. Rogers, 2003). Releasing the accrual is appropriate when it turns out that less is needed to pay the bills than has been expected to pay. Instead, WorldCom provided offset against reported line costs when the accrual was released which reduced reported expenses and increased pre-tax income (Beresford, Katzenbach, & C.B. Rogers, 2003). When the accruals started to run out, WorldCom came up with another method, capitalization of line costs. WorldCom started classifying line cost expenses as long-term capital investments in 2000 (J. Randel Kuhn & Sutton, 2006). These expenses are required to immediately recognize in the period incurred since the expenses are not for assets that can be capitalized and depreciated over their useful life in accordance with GAAP. By falsely recording these expenses, WorldCom reported an artificial increase in its net income and earnings before interest, taxes, depreciation and amortization (What Went Wrong at WorldCom?,
Another reason for Enron’s bankruptcy was the unnecessary personal spending by corporate managers. It was a direct loss to the company’s shareholders. In the later stages before its bankruptcy, the luxuries were paid from the company’s borrowing, as it had no real profits. Therefore in the later stages, the creditors were at a loss rather than its shareholders.
...FO at the Houston airport. While Mr. Fastow's parents were undergoing a random search, he stopped to chat with Mr. Schwieger. "I never got an opportunity to explain the partnerships to you," he said, according to Mr. Schwieger. Mr. Schwieger replied, "With everything that has come to light, I probably wouldn't like the answer I would have gotten."
The thing I liked most about this documentary was the fact that it focused on the guys at the top, the self-proclaimed "smartest men in the room", the so-called geniuses who knew the energy business so much better than the rest of the industry. And what a piece of work these men were.
Enron Corporation started back in 1985. It was created as a merger of Houston Natural Gas and Omaha based InterNorth as a interstate pipeline company (CbcNews). Kenneth Lay was the former chief executive officer of Houston natural gas merged his company with another natural gas line company, Omaha Based InterNorth. During the time of the merger there were many arguments amongst the two companies and in the end Ken Lay the former C...
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
Enron was in trouble because of something that almost every major corporation during this time was guilty of. They inflated their profits. Things weren't looking good for them at the end of the 2001-year, so they made a common move and they restated their profits for the past four years. If this had worked to their like they could have gotten away with hiding millions of dollars in debt. That completely admitted that they had inflated their profits by hiding debt in confusing partner agreements. Enron could not deal with their debt so they did the only thing that was left to do, they filed for chapter 11 bankruptcy. This went down as one of the largest companies to file for bankruptcy in the history of the United States. In just three months their share price dropped from $95 to below $1.
One of the most popular business bankruptcies and collapses known to date is that of the Enron Corporation. Enron, once known as "America's Most Innovative Company" by Fortune Magazine six straight years from 1996 to 2001. Enron seemed to be doing very well until the summer of 2001 generating a lot of cash and new businesses, but in October of 2001 Enron was forced to disclose that their accounting practices had been very creative, and failed to follow generally accepted accounting principles. Profits that had been soaring sky high were wiped away and replaced with enormous losses and charges that were never recorded properly. Unfortunately, Enron executives who were responsible for the shady accounting practices, were able to escape this debt by selling off most or all of their shares in the company (valued at over 10 million dollars) before the stock price fell greatly. They also froze employee's pension plans, and many people lost their jobs in the wake of the collapse and found out their retirement was history (Anonymous, 2002).
Enron and Arthur Anderson were both giants in their own industry. Enron, a Texas based company in the energy trading business, was expanding rapidly in both domestic and global markets. Arthur Anderson, LLC. (Anderson), based out of Chicago, was well established as one of the big five accounting firms. But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as “creative” accounting methods, this resulted in them posting record breaking earnings. Anderson, who earned substantial audit and consultation fees from Enron, failed to comply with the auditing standards required in their line of work. Investigations and reports have resulted in finger pointing and placing blame, but both companies contributed to one of the most notorious accounting scandals in history. There remains much speculation as 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 fraud refers to fraud that is committed by a company by maintaining false information about the sales and income in the company books, when overstating the company's assets or profits, when a company is actually undergoing a loss. These fraudulent records are then used to seek investment in the company's bond or security issues. By showing these false entries, the company attempts to apply fraudulent loan applications as a final attempt to save the company by obtaining more money from bankruptcy. Accounting frauds is actually done to hide the company’s actual financial issues.
For those who do not know what fraud is, it’s basically deception by showing people what they want to see. In business it’s the same concept, but in a larger scale by means of manipulating figures that will be shown to shareholders and investors. Before Sarbanes Oxley Act there was “Enron Corporation”, a fortune 500 company that managed to falsify their statements claiming revenues over 101 billion in a span of 15 years. In order for us to understand how this corporation managed to deceive the public for so long, the documentary or movie “Smartest Guys in the Room” goes into depth by providing viewers with first-hand information from people that worked close with or for “Enron”.
Many recommendations and lessons learn can come from this scam. Trust and credibility making sure that auditing firms audit clients truly are independent. These circumstances can lead to a type of managerial myopia that focuses managerial attention on the firm’s potential to investors in an effort to reach higher market valuations of the firm’s stock. Have to make sure there is no disconnect between current market prices and the intrinsic worth of a firm’s shares. Because every stockholder, CEO wants to make as much money as possible and follow the rules.
However, in December 2001 Enron became global interest as the debts of the firm unfolded which led to the largest bankruptcy in US history at that time yet sharehol...
Enron was on the of the most successful and innovative companies throughout the 1990s. In October of 2001, Enron admitted that its income had been vastly overstated; and its equity value was actually a couple of billion dollars less than was stated on its income statement (The Fall of Enron, 2016). Enron was forced to declare bankruptcy on December 2, 2001. The primary reasons behind the scandal at Enron was the negligence of Enron’s auditing group Arthur Andersen who helped the company to continually perpetrate the fraud (The Fall of Enron, 2016). The Enron collapse had a huge effect on present accounting regulations and rules.
Financial fraud have increased considerably over the years and it is likely to continue if not adequately dealt with. The Association of Certified Fraud Examiners (ACFE) “2012 Report to the Nation” is one study that describes the losses that an entity may experience as a result of fraud; A typical organization losses approximately 5 percent of its annual revenue to fraudulent acts. The cost of fraud to business and public can only be estimated as many crimes go unreported.
The Enron Corporation was an American energy company that provided natural gas, electricity, and communications to its customers both wholesale and retail globally and in the northwestern United States (Ferrell, et al, 2013). Top executives, prestigious law firms, trusted accounting firms, the largest banks in the finance industry, the board of directors, and other high powered people, all played a part in the biggest most popular scandal that shook the faith of the American people in big business and the stock market with the demise of one of the top Fortune 500 companies that made billions of dollars through illegal and unethical gains (Ferrell, et al, 2013). Many shareholders, employees, and investors lost their entire life savings, investments,