Enron, a well-known energy trading company, went bankrupt in Oct. 2002. Enron was one of the largest energy companies in the world. When Enron filed for bankruptcy in 2002, its stock prices dropped to $0.67 per shares from $ 90.75 per shares. There were many reasons behind the bankruptcy such as a series of accounting frauds, poor corporate ethics and failure of board of directors and audit Company. Enron’s CFO came with a plan of making the company look good financially, even though the company was losing money. His plan was to hide the assets that were losing money which made it easier for them to keep the assets off of the company’s book. They started to issue common stock to shareholders to compensate them for the loss. But this game could not go on for a long time; finally some people started to raise question about Enron’s income in 2000.
SEC, which is a Government agency protecting the investors from accounting frauds, started an investigation of Enron’s financial transactions in 2001. After a few months of investigation, Enron filed for bankruptcy at the end of 2001.Sherron Watkins, who was a vice president of Enron corporations, testified her role in the fraud before US Senate and Representatives after the bankruptcy. A power committee was appointed by US senate to investigate the reason behind the bankruptcy. They found that Enron had overstated its earnings by millions of dollars. They also discovered that company paid unapproved bonus to its managers and executives. In addition to that, Enron used wrong accounting treatment to enter billions of dollars in loss.
There are a few reasons behind why the shareholders and auditors did not know anything about this fraud. Enron financial statements were too complicated for the management to understand. The accounting firm Arthur Anderson, who was responsible for auditing Enron’s financial statement, did not