Most of the world has heard of Enron, the American, mega-energy company that “cooked” their books (Gupta, Weirich & Turner, 2013) and cost their investors billions of dollars in lost earnings and retirement funds. While much of the controversy surrounding the Enron scandal focused on the losses of investors, unethical practices of executives and questionable accounting tactics, there were many others within close proximity to the turmoil. It begs the question- who was really at fault and what has been done to prevent it from happening again? The story of Enron begins in 1985, with the merger of two pipeline companies, orchestrated by a man named Kenneth L. Lay (Zellner & Forest, 2001). In its 15 years of existence, Enron expanded its operations to provide products and services in the areas of electricity, natural gas as well as communications. Through its diversification, Enron would become known as a corporate America darling (Tonge, Greer & Lawton, 2003) and Fortune Magazine’s most innovative company for 5 years in a row (Hayes & Ariail, 2013). They reported extraordinary profits in a short amount of time. For example, in 1998 Enron shares were valued at a little over $20, while in mid-2000, those same shares were valued at just over $90 (Hayes & Ariail, 2013), the all-time high during the company’s existence (Tonge, Greer & Lawton, 2003). Though the numbers looked good, the process behind them was questionable. Unbeknownst to many, Jeff Skilling, a top Enron executive, was able to persuade the SEC and their accounting firm, Arthur Anderson & Company, to approve the use of mark-to-market accounting (M2M). This technique allowed the company to report profits from long term contracts up front, before all earnings had actual... ... middle of paper ... ...Stewart, B. (2006). The Real Reasons Enron Failed. Journal Of Applied Corporate Finance, 18(2), 116-119. Retrieved from Business Source Complete database. Tonge, A., Greer, L. & Lawton, A. (2003). The Enron story: You can fool some of the people some of the time. Business Ethics: A European review, 12(1), 4-22. Retrieved from Business Source Complete database. United States Securities and Exchange Commission. (2011). Dodd-Frank Act Rulemaking: Whistleblower Program. Retrieved from http://www.sec.gov/spotlight/dodd-frank/whistleblower.shtml Willits, S. D. & Nicholls, C. (2014). Is the Sarbanes-Oxley Act working? The CPA Journal, 84(4), 38-43. Retrieved from Business Source Complete database. Zellner, W. & Forest, S.A.. (2001, December). The fall of Enron. Businessweek. Retrieved from http://www.businessweek.com/stories/2001-12-16/the-fall-of-enron.
The Enron Scandal, which unrolled in October 2001, lead to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the de facto dissolution of Arthur Andersen, a large audit and accountancy partnership firm.
At Novermeber 8th, 2001. Enron was forced to admit made false accounts and false number. Since 1997 Enron inflate profits totaling nearly $600 million. Along with in-depth investigation, these companies who have close partnership with Enron are also found out. These parterships are mostly controlled by Enron senior officials. Enron’s huge foreign loans are often inducled in these companies, and not appear on Enron’s balance sheet. Thus up to $13 billion Enron’s huge debt for investors would not know. Otherwise, Enron;s senior management for the company;s problems are well understand, but no one speak out. On the other hand, many of the board price will continue to rise and sell share in secret. The more irnoic thing is “ Fortune Magazine named Enron as ‘America;s Most Innovative Company’ for six years in a row perior to the scandal.
The Enron Corporation was founded in 1985 out of Houston Texas and was one of the world 's major electricity, natural gas, communications, and pulp and paper companies that employed over 20,000 employees. This paper will address some of the ethical issues that plagued Enron and eventually led to its fall.
Flynt, Sean. “Enron Whistleblower Tells Chilling Tale of Corporate Ruin.” Samford University. Ed. Donna Fitch. 19 Feb. 2004. 3 Mar. 2005.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
Enron’s collapse occurred due to the fault of its executives who used their power in a wrong direction. They used information for their own gain and deluded their employees. Employees were obliged to put all their retirement plans into the stocks of Enron and at the moment of falling down of stocks, workers weren’t able to sell them, but heads could sell them any time. Enron’s positive reports were hiding downsides of the company only to hold their stocks at the ceiling level for a reason to get more investors. Enron’s failure caused by the greediness of its executives and the fact that no one stopped them and even favored in such crime. For example, their
“Based on the never-before-published revelations of Sherron Watkins, the Enron Vice President who blew the whistle, POWER FAILURE is a gripping account of the greed, ambition, and arrogance that fueled Enron's rise--and the internal rivalries and financial chicanery that brought the company crashing down. In the late 1990s, Enron was hailed as the model company of the new economy.” (Power Failure: The Inside Story of How Enron's Culture of Arrogance and Greed Led to The biggest bankruptcy in American History, Author: Swartz, Mimi With: Watkins, Sherrin) Enron was a new economy company and is considered as one of the most innovative companies in the US. Ranked No. 7 before its bankruptcy, it expanded into a mega enterprise within a time span of only 15 years. The company filed for bankruptcy so that it can reorganize its operations while protected from the creditors. The company was accused of contributing business funds for political campaigning and to influence politicians through it, trying to influence the national energy policy, not paying Income Tax in the last four years despit...
"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business. As these things come out, it just continues to build up"(CBS MarketWatch, Hancock). The memories of the Frauds at Enron and WorldCom still haunt many investors. There have been many accounting scandals in the United States history. The Enron and the WorldCom accounting fraud affected thousands of people and it caused many changes in the rules and regulation of the corporate world. There are many similarities and differences between the two scandals and many rules and regulations have been created in order to prevent frauds like these. Enron Scandal occurred before WorldCom and despite the devastating affect of the Enron Scandal, new rules and regulations were not created in time to prevent the WorldCom Scandal. Accounting scandals like these has changed the corporate world in many ways and people are more cautious about investing because their faith had been shaken by the devastating effects of these scandals. People lost everything they had and all their life-savings. When looking at the accounting scandals in depth, it is unbelievable how much to the extent the accounting standards were broken.
Enron started about 18 years ago in July of 1985. Huston Natural Gas merged with InterNorth, a natural gas company. After their merge they decided to come up with a new name, Enron. Enron grew in that 18-year span to be one of America's largest companies. A man named Kenneth Lay who was an energy economist became the CEO of Enron. He was an optimistic man and was very eager to do things a new way. He built Enron into an enormous corporation and in just 9 years Enron became the largest marketer of electricity in the United States. Just 6 years after that, in the summer of 2000 the stock was at a tremendous all time high and sold for more than 80 dollars a share. Enron was doing great and everything you could see was perfect, but that was the problem, it was what you couldn't see that was about to get Enron to the record books.
Sarbanes-Oxley Act of 2002 (SOX), Pub. L. No. 107-204, 116 Stat. 745 (codified as amended in scattered sections of 15 U.S.C.)
Enron’s stock price fell from 90 dollars to 50 cents a share. Because of the executive’s choice, the employees lost their entire pension fund and any other money they had invested in the company.
“When a company called Enron… ascends to the number seven spot on the Fortune 500 and then collapses in weeks into a smoking ruin, its stock worth pennies, its CEO, a confidante of presidents, more or less evaporated, there must be lessons in there somewhere.” - Daniel Henninger.
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.
The executives tried to cover up their own failures when some of their business trading ventures started to perform poorly. The main aspect to the failure of Enron as a business was greed. The reason why this started was the moment when Jeff Skilling merged a mark to the accounting in Enron’s policy, which the system of the business had been taken advantage of.
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,