Enron Scandal

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Enron was a successful American energy, commodities and services company that is better known for one of the most notorious scandals in United States history. Before their involvement in criminal activity, Enron was also one of world’s major electricity and natural gas companies and was named “America’s Most Innovative Company” by Fortune magazine six years in a row. In 1985, Kenneth Lay, founder and CEO of Enron, merged Houston Natural Gas and InterNorth, Inc. to form Enron. By 1992, Enron became one of the largest sellers of natural gas in North America and in 1999, the Enron Online trading website had to be created to manage its trading business. Enron’s European Gas Trading team created Enron Online to allow stock holders to buy, sell, and trade commodity products globally; $6 billion worth of commodities such as gas, steel, metals, and freight were transacted on a daily basis. Enron soon became one of the largest trading sites in the world and “about 90 per cent of its income eventually came from trades over Enron Online” (CBC News). In the 1990’s after the United States Congress approved legislation that deregulated the sale of natural gas, Enron was able to sell energy at much higher prices and to gain higher revenues. This is when Enron’s engagement in criminal activity is considered to have begun. While most companies’ activities regarding commercial business are regulated and watched over by the government, deregulated companies “are not subject to government mandating and oversight; as a result, the executives of ENRON were able to misrepresent their respective earnings reports and stock activity in a fraudulent manner” (Finance Law) by misrepresenting their earnings therefore falsely inflating the prices of their sto... ... middle of paper ... ...s. Some major elements of the act are the Public Company Accounting Oversight Board (PCAOB), corporate responsibility and enhanced financial disclosures. The PCAOB oversees auditing firms to ensure that they comply with specific processes for compliance audits. Title III of the act mandates that executives take personal responsibility for the accuracy of financial statements. It also contains specific guidelines for the interaction of external and corporate auditors to avoid conflicts of interests. In Title IV of the Sarbanes-Oxley Act, it mandates internal controls for maintaining the accuracy of financial statements and requires enhanced reviews of financial reports by the SEC. After the devastation that was the Enron Scandal, the Sarbanes-Oxley Act is enforced to maintain the integrity of the accounting profession to ensure that such an event does not reoccur.

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