Enron Scandal

908 Words2 Pages
bulb-icon

Recommended: Prosperity of the boom years in the US in the 1920s

In the early 2000’s the economy was doing well and the stock market was also doing well. A company by the name of Enron was an up and coming company in Houston Texas. As explained in the article “the real scandal” Enron was created in 1985 by Kenneth Lay after combining companies Houston Natural Gas and InterNorth. Other executives provided false information and led Enron’s board of directors on fraudulent and high risk accounting practices (Enron, 2002). Because of this scandal and others like it the government and it agencies were forced to do an investigation concerning the unethical behavior and the amount of false information that was provided to make investors believe the company was more profitable then it currently was at that time.
When investing in a company there is a lot at stake. When looking at investing investors want to know how the company is doing financially and in order for this to happen companies have to make their financial records public knowledge. Until the scandals such as Enron investors would have to look at the financial reports and have to believe that the information was true even though there was no proof that the information from a companies financial report was true until 2002 when an Act was signed into place to regulate the companies financial team and make them responsible for false information.
Sarbanes-Oxley Act of 2002
According to Deng in the article “Auditors’ Liability, Investments, and capital markets: A potential unintended consequence of the Sarbanes-Oxley Act, To restore investors’ confidence in the reliability of corporate financial disclosures, the Sarbanes-Oxley Act of 2002 mandated stricter regulations and arguably increased auditors’ liability” (Deng, 2009). There many peo...

... middle of paper ...

...umentation as well as test to ensure effectiveness to prevent fraud by any company.
Achieved Its Goals
Although in recent years there has not been companies committing fraud to the likes on a company like Enron the success of the SOX Act has been argued to its rate of success. While helping to mandate the financial reports put forward by a company some believe that the Act has failed to ensure that honest reports and disclosures and now are made public knowledge. In the article the effect of section 404 of the Sarbanes-Oxley act on earnings quality Zvi Singer stated “we find that complying firms improved their earnings quality in the post-404 period more than the control firms. Specifically, we show that complying firms exhibited significantly larger improvement in earnings reliability as evidenced by a reduction in the absolute value of discretionary accruals.

Show More
Related

  • Enron Scandal: A Study in Corporate Fraud

    774 Words  | 2 Pages

    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.

    Read More

  • The Enron Disgrace

    2858 Words  | 6 Pages

    ...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."

    Read More

  • Enron Case

    851 Words  | 2 Pages

    Enron corporation, a company establisted at 1985, in Taxes. Until 2001, it becames one of the biggest company in the world, which service for energy, natural gas and telecommunications. In 2000, the disclosure turnover reached $101 billion. Everything is going well for Enron corporation. However, at beginning of 2001, Jim - a good reputation of the short-term investment agency owner. Publicly on Enron’s profit model expressed doubts. He pointed out that alough Enron’s business looks very brilliant, but in fact they cannot really make the amount of moeny like the data shown before. No one can say they can understand how Enron is making moeny. According to the inverstment owner’s analysis, Enron’s profitability in 2000 to 5%, to the beginning

    Read More

  • Analysis Of The Collapse Of Enron

    761 Words  | 2 Pages

    A documentary film released in 2005 called the Smartest Guys in the Room reveals the shocking collapse of Enron. The Smartest Guys, Kenneth Lay, Jeff Skilling, Andrew Fastow, Lou Pai, Clifford Baxtor, and Arthur Anderson, were all involved with America’s ultimate Corporation Scandal. But who do we blame? Enron had over 20,000 employees and was founded by Kenneth Lay, CEO of Enron, in 1985. Lay wanted to push his views of deregulation which pushed him to start the company (SGR). The first event that happened leading up to the downfall was the president, Mr. Borget, and his traders manipulating the company’s earnings and exporting the profits to their personal account. When Lay made the decision to not fire them, it definitely raised the

    Read More

  • Essay On Enron Scandal

    682 Words  | 2 Pages

    The Enron scandal is one of the biggest scandals to take place in in American history. Enron was once one of the biggest companys in the world. It was the 6th largest energy company in the world. Due to Enron’s downfall investors of the company lost nearly 70 billion dollars. This was all due to many illegal activities done by Eron's employees. One of these employees was Andrew Fastow, the chief financial officer of the Enron corporation had a lot to do with the collapse of the Enron company.

    Read More

  • Accounting Fraud, the Investor and the Sarbanes Oxley Act

    1981 Words  | 4 Pages

    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).

    Read More

  • Enron's Fall: An Examination of Corporate Ethics

    877 Words  | 2 Pages

    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.

    Read More

  • Remembering the Frauds at Enron and WorldCom

    2739 Words  | 6 Pages

    "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.

    Read More

  • Enron

    1167 Words  | 3 Pages

    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.

    Read More

  • Analysis of the Enron/Arthur Anderson Scandal

    1550 Words  | 4 Pages

    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.

    Read More

  • Accounting Scandals: The ENRON Scandal in 2001

    1233 Words  | 3 Pages

    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.

    Read More

  • Essay On The Enron Corporation Scandal

    2377 Words  | 5 Pages

    “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.

    Read More

  • Fall Of Enron Essay

    1519 Words  | 4 Pages

    Prior to 2000, Enron was an American energy, commodities and service international company. Enron claimed that revenue is more than 102 millions (Healy & Palepu 2003, p.6). Fortune named Enron “American most innovative company” for six consecutive years (Ehrenberg 2011, paragraph 3). That is the reason why Enron became an admired company before 2000. Unfortunately, most of the net income for the years 1997-2000 is overstated because of unethical accounting errors (Benston & Hartgraves 2002, p. 105). In the next paragraph, three main accounting issues will identify for what led to the fall of Enron.

    Read More

  • The Enron Corporation Case Study

    1339 Words  | 3 Pages

    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,

    Read More

  • Enron Ethical Dilemmas

    722 Words  | 2 Pages

    Enron had rose to the top by engaging in energy projects worldwide and speculating in oil and gas futures on the world’s commodities markets. They also provided financial support to some presidential candidates and members of the U.S. Congress. However, Enron had a secret. The corporation had created partnerships located in off-shore

    Read More

More about Enron Scandal

Open Document