How Did Accounting Lead To The Collapse Of Enron?

On May 25th, 2006 Chief Executives, Kenneth L. Lay and Jeffery K. Skilling were both found guilty of fraud and conspiracy. “The conspiracy and fraud convictions would each carry a sentence of 5 to 10 years, as well as Mr. Skilling inside trading charge which carries a maximum of 10 years (Barrionuevo, 2014). Lay and Skilling hold the majority of blame, because they made their management decision to encourage Greed and Fraud regardless of ethics. These men were very short sited with their approach and were not qualified to hold their post. The fallout from Enron has changed the way business is conducted to this day under relevantly new Sarbanes and Oxley Act. Even though Sarbanes And Oxley Act was passed, there are still more precautions that need to be taken. Enron mistakes resulted in new laws being passed, but there were many problems internally that Enron did to lead to its failure.

Accounting played a big role in the collapse of Enron. With controversial accounting practices being used, Enron perceived there finances being much bigger then what they actually were. One of the major accounting practices was decentralizing operations and putting them into shell corporation, this allowed Enron to hide

There weren’t any standard independent audits being conducted before the years of fraud, which is a little curious until you look at Enron’s contribution to political candidates. Enron used their political connections in Democrats and Republication administrations as well as Wall Street, which allowed them to prepare fraudulent statements. “Since 1989, Enron has made a whopping $5.8 million in campaign donations, 73 percent to Republicans and 27 percent to Democrats (Follow the Enron money, 2002).” The money spent by Enron bought favors from America’s most powerful people and gave them leverage to commit fraud wherever they saw