Enron Case Study

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1. Enron was holding on by a thread. The traders were told by the Enron executives to do whatever it takes. This meant crossing all sorts of ethical boundaries just to get a spot as a top Enron trader. Enron went to great lengths to try and fake it's income. “When Jeffrey Skilling, a key player in this scandal, was hired, he developed a staff of executives that, by the use of accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer (CFO) Andrew Fastow and other executives not only misled Enron's board of directors and audit committee on high risk accounting practices, but also pressured Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world, to ignore the issues” Enron kept finding different ways to hide their debt. They used an accounting method called mark-to-market accounting. This accounting method is based on market value, which was then inflated. While using the method, income from projects could be recorded, although they might not have ever received the money. The tipping point for Enron was when Bethany McLean, a Fortune Magazine reporter, questioned how Enron made its money. Investors started to get worried and sold their stock. When Jeffery Skilling finally realized that Enron was in so much debt and there was no way out anymore, he up and left the company. He told everyone that he was leaving for family reasons. This was the final blow for the company.
2. The top executives of Enron were smart, successful individuals as well as the investors from the large financial institutions, corporate lawyers, and accountants from the largest accounting firm at the ...

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...antly increasing its revenue. The company’s stock increased 311% from the 1990s until 1998. If these top executives didn’t get so greedy and gamble with Enron’s money, the company would have never fallen as bad as it did. What changes should be made in order to keep this from happening again? Enron should start using ethical business practices and stay away from appointing greedy individuals to top managerial positions. Enron was originally led by very smart individuals. But, as time went on and they started to not only work for the company but become the company, these individuals got greedy and made risky decisions, gambling with Enron’s money. Enron and the individuals that were originally in top managerial positions have learned from this experience. It goes to show that companies that don’t practice ethical business decisions have a great chance of crumbling.

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