...Accounting Nightmare The Fall of Enron Karen Shuler 10/16/2013 XACC/280 Enron started as an energy company that sold natural gas to gas companies. Energy markets changed in 1996, instead of the price being fixed, the price was now decided by competition among energy companies. This is when Enron stated trading contracts instead of selling natural gas. The quick growth this company experience brought in many investors and drove the price of their stock high. Also with this growth Enron expanded into other industries. This made it difficult to prepare the financial statements. For Enron to keep growing this fast they started to borrow money to invest in new projects. This borrowing would make their books look less impressive to investors, they decided to create partnerships that would allow them to keep the debt off the books. This was unethical to the investors, by not giving them the accurate information on Enron. The thing I would have done differently would been to put this debt into the books, so it was ethical for everyone involved, and the the company would had known it was owed and figured out a way to legitimately pay the money back. In the end Enron's decision lead them to bankruptcy. Due to their internet investment they lost 638 million dollars, and due to overstated earnings would cost 6 million dollars by the next year Enron's stock price dropped. This then triggered multiple people they had to pay back...
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...The Fall of Enron Abstract This research paper talks about the Enron case – how it rose to the level of one of the top companies in the world and then fell from grace so that it eventually had to file for bankruptcy. The paper will discuss the financial and accounting manipulations that Enron resorted to and the analysts approach towards its stock prices and will discuss its eventual fate. The study will revolve around how Enron shed its ethics in an attempt to report ever increasing income and keep its stock prices high and how despite its short-lived surge of growth, it is still, even 11 years after a bankrupt, struggling to stand on its feet. The role of Enron’s top management and its auditors is elaborated upon, as is the detail of the tools they resorted to in order to hide debts and inflate profits. Enron was clearly a case of fraud where investors were cheated as the company management portrayed a rosy picture of a developing and expanding business while in reality the company’s expansion was going nowhere and most of its new businesses were unsuccessful. In an attempt to grow fast, Enron lost its roots and while trying to master itself in several different fields, forgot the basics of business. The Fall of Enron Introduction The fictional superhero Spiderman once said, “With great power comes great responsibility.” This balance between power and responsibility exists not just in our personal life, but also in business. Peter Drucker stated that “There is...
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...Enro: The Fall Saurabh Bakshi Class: BUSB 300 THE ETHICAL AND LEGAL ENVIROMENTS OF BUSINESS Instructor: Mr. Bruce Rawding Enron: The Fall In 2001, America’s largest corporate bankruptcy hit Wall Street. A company that provided for many stock market traders, collapsed in twenty four days and there was no way to retrieve lost fortune. Not only traders but the company’s own loyal/faithful employees had a big share in the losses as well. A massacre that was quiet well planned and then executed here, in our great corporate America. Many say it was the result of greedy money minded immoral people, others do not understand complicated transactions and then there are those who blame the government and law makers. At the end of it all, no matter what caused it, people’s lives was destroyed, retirement plans were washed away and most of all the system was toyed with. There were many ethical codes set by our corporate minds, which were either neglected or taken advantage of. This paper is going to analyze the movie Enron: the smartest guys in the room by Magnolia Pictures and also try to better understand the ethical issues that lead to the collapse of the largest natural gas merchant in North America. A firm ethical conduct can be analyzed by first analyzing its key players and how their personal ethic conduct played a major role in sheltering this fraudulent company (CEO, president, board of directors). Kenneth Lay founded Enron in 1985 (Enron: the smartest guys in the room)...
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...Case: The Fall of Enron 1. Why was Enron such an admired company prior to 2000? What innovation do they bring to the table? Be specific and support your statement with concrete information. Enron was an admired company prior to 2000 because at that time it surfaced as a frontrunner in the deregulated energy market, making it possible to sell energy at higher prices, thus significantly increasing its revenue. The company, through efficient management team, has built leading businesses in energy trading and international energy asset construction. The company has managed to maintain high return from its investments through ideal placement of resources by creating long term and fixed price contracts with clients that guaranteed stable gas prices for the duration of the contract, and managing the risk to commitment ratio. The company has further encouraged employees to move around the organization freely to positions where they feel they can add value and generate additional revenue. The company sought to rapidly obtain physical capacity in order to guarantee delivery to customers. This approach enabled Enron to provide customers with contracts that would allow for them to manage their business risks. Enron successfully used the energy-trading model to develop electric power. It acquired electric power generation, transmission, and distribution, and distribution expertise by buying Portland General Electric. In an attempt to achieve further growth, Enron pursued a diversification...
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...The Fall of Enron 1. Why was Enron such an admired company prior to 2000? What innovation do they bring to the table? Be specific and support your statement with concrete information. Prior to the year 2000, Enron Company, established in the mid-80s, caused the admiration worldwide because of its fast rise of revenue both in the local and international stock market in a short period of time. Enron’s operating income in the year 2000 was stated in $100.7 billion and its after-tax net income was reported in $979 million (Palepu & Healy, 2013). The enterprise’s business model was based on energy-trading, centered in the deregulated energy marketplace, and in its significant investments in several large-scale commodities and other broad different services. Enron promoted natural gas and electrical energy. It also provided energy and other merchandises and it supported with risk management and financial services to consumers on a global level. Considered for six consecutive years, since mid-90s, America’s most innovative business (Ellison, 2013), Enron bring to the table a transformational initiative in the course of a period of fast business model changes in the western hemisphere. In any different market it admitted, the company provided not just a new creation and service concepts, but also a fresh business model pathways. In reference to managerial quality and talent Enron was constantly classified close the best of everybody’s line up, employee capacity, and excellence of services...
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...The fall of Enron: Corporate Culture, Governance and Ethics Written By: Bilge-Kagan Ozturk 2007 Abstract This paper examines the critical importance of an ethically based corporate/organisational culture to ensuring company-wide ethical conduct. Testament to this topic I use the case of Enron and its ethical demise to successfully support my argument and highlight the need of top level management to be the main proponents of this culture to allow lower level employees to adopt a behaviour of moral reasoning. The body of the essay will highlight the importance of shaping an ethically based organisational culture, through a number of components, namely a company’s executive management team and its corporate governance system. I also briefly evaluate agency and stakeholder theories and how they relate to an organisational culture from an ethical perspective, and point out Enron’s culture was predominantly one of agency reasoning. Finally I provide a brief and direct conclusion to assert my argument that ethics needs to exist deep within an organisation’s culture and needs to be the key leading value of an organisation. A breakdown of ethics can eventually lead to the demise of a once very reputable and successful company. A great textbook example is of course, the fall of Enron – one of the biggest corporate bankruptcies in US history. Like most companies, Enron had a code of ethics in place and employees who were educated in the field of ethics, agency...
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...The Fall of Enron 1. Introduction Although Enron went bankrupt and disappeared ten years ago, the impacts it has made on the ethical standards never faded. It took Enron 16 years to go from about ten billion dollar assets to more than sixty-five billion dollar assets, and took twenty-four days to go bankrupt. (McLean & Elkind, 2004) Enron, which once ranked as the seventh-largest company on the Fortune 500 and ranked as the sixth-largest energy company in the world, on December 2, 2001, filed for bankruptcy protection in the biggest case of bankruptcy in the United States up to that point (Jennings, 2009, p. 285). By November 2001, the company’s stock, which once peaked at $90 US, was down to less than $1 US. It was a disaster for the thousands of employees and investors (Skilling v. United States, 2010). Employees lost their jobs and pensions, and investors lost billions of dollars. The Enron scandal is one that left a deep and ugly scar on the face of modern business. In this article, the facts of Enron’s case were reviewed and the major ethical issues involved in Enron’s scandal were analyzed. The rest of the paper is organized as follows. The second part is a brief summary of what has happened in Enron. The third part described the role of Arthur Andersen (AA) in the Enron scandal. In the following parts the culture of Enron, the important people involved in this case, and also the major ethical issues about this scandal were analyzed. At last, the conclusion...
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... Ratner (SER-0015) UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK -------------------------------------------------------In re ENRON CORP., et al., Debtors. -------------------------------------------------------ENRON CORP., Plaintiff, v. CREDIT SUISSE FIRST BOSTON INTERNATIONAL and CREDIT SUISSE FIRST BOSTON LLC , f/k/a CREDIT SUISSE FIRST BOSTON CORPORATION, Defendants. --------------------------------------------------------x : : : : : : : x : : : : : : : : : : : : : : : : : x Chapter 11 Case No. 01-16034 (AJG) Jointly Administered Adversary Proceeding No. 03 - ____________ (AJG) COMPLAINT FOR THE AVOIDANCE AND RECOVERY OF PREFERENTIAL AND FRAUDULENT TRANSFERS, RECOVERY OF ILLEGAL PAYMENTS TO A SHAREHOLDER WHILE THE DEBTOR WAS INSOLVENT, AND FOR OTHER RELIEF Plaintiff Enron Corp. (“Enron”), as a debtor and debtor in possession, by its special litigation counsel, Venable LLP, and its bankruptcy co-counsel, Togut Segal & Segal LLP, for its complaint against Defe ndants Credit Suisse First Boston International and Credit Suisse First Boston LLC, f/k/a Credit Suisse First Boston Corporation (collectively, “CSFB”), alleges the following facts and claims: NATURE OF THIS ACTION 1. Enron brings this suit to recover large pre-petition illegal and preferential payments to a stockholder, made at times when Enron was insolvent, notwithstanding that other...
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...between external auditors and Enron and the existence of conflicts of interest. From 1993, Enron started to outsource its internal audit functions to Anderson. Besides, conflicts of interest gets aggravated when the cross-selling of consulting services by auditors increases a lot. And consulting fees to auditors are much lucrative than the audit fees. As a result, Enron could easily threaten Anderson to give a favorable opinions to the public and otherwise Anderson couldn’t maintain a good relationship with Enron. Most importantly, there is a significant lack of independence because a number of Anderson employees joined Enron, including accounting officer, treasurer and the chief financial officer over the years. Those employees in management level are more likely to be confident with the financial report of Enron and lack professional criticism when considering the accounting methodology used by Enron because of their possibly previous audit involvement. Equal important aspect of failure comes from the inefficient and lack of shared concerns with Enron’s audit committee or management. Auditors didn’t fulfill their responsibilities to discuss with the audit committee the significant risks (risky employed accounting techniques) identified during the audit risk assessment procedures and their own concerns regarding retaining the Enron as a client. For the board of directors, they breached a duty of care, loyalty and candor because it allowed Enron to engage in high risk accounting...
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...Heidrick Dr. Dan Deines ACCTG 641 15 October 2014 The Meteoric Rise and Fall of Enron Enron was created in 1985 after a merger between Houston Natural Gas and Internorth. By 2002 it was gone forever. Its stock price rose to $90/share in August of 2000 before bottoming out at $0.40/share when they filed for bankruptcy on Dec. 2nd 2001. It only took 16 years for one of the largest Fortune 500 companies to completely dissolve, taking employee jobs, pensions, Arthur Andersen, and the American public’s faith with it. Enron and its young McKinsey consultant created the energy derivative and used it to form the new natural gas division that dominated the market. However, the use of mark-to-market accounting and the creation of Special Purpose Entities (SPEs) led to overstated profits and inaccurate balance sheets. By the fall of 2001 nobody could find out how Enron was making its money. A disclosure on the October financial statements for a $1.2 billon dollar reversal caught the Security and Exchange Commission’s (SEC) attention. They launched an investigation and in less than two months Enron filed for bankruptcy protection. A large part of the scandal also focused around Arthur Andersen, at the time of the of the Big Five accounting firms, because of its qualified auditing opinions of Enron. It ultimately ceased to exist because of its involvement with the Enron fraud. The Enron scandal showed the public that changes in accounting and auditing standards and practices...
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...Reaction on “The Rise and fall of Enron” I certainly agree to this sentence in the article “When a company looks good to be true, it usually is.” because Enron is the living proof of that. When I read the article, I was so interested as to how the successful company suddenly collapsed. And after reading it, I gained new insights and learning that are useful and applicable to the real world. It has been a lesson learned happening when the Enron meets its decline. Many companies took their example and study it in order for it not to happen in their own individual companies. So what really happened? As what in the New York Times reported, “Wall Street was impressed with Enron's strategy of swooping into formerly regulated markets to broker contracts for natural gas, electricity or unused telecom bandwidth. The company was celebrated as a paragon of American ingenuity, a stodgy gas pipeline company that had reinvented itself as a high-tech clearinghouse in an ever-expanding roster of markets. Enron's push to force utilities into the Internet age with its online trading systems, at a seemingly handsome profit, became an epic tale of the dot-com revolution.” This was the time when Enron was still standing at the top of the industry but then as they say, the world is going round and round, sometimes there are ups and sometimes there are down. So it now appears that Enron's tale may be more cautionary than epic. Enron envy has crashed, along with the company's stock price, as serious...
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...The Rise and Fall of the Enron Corporation Malay Blama Leg 500 Summer Quarter Prof. D. F. Page Strayer University August 9, 2009 Abstract Enron was an American energy trading and communication company based in Houston, Texas. It was formed in 1985 by Kenneth Lay after merging with Houston Natural Gas and InterNorth companies. Kenneth Lay was originally the CEO of the Houston Natural Gas company prior to the merger. By the middle of 2000 Enron stock price hit all time high of $90.00 per share causing share holders to lose nearly $11 billion when it plummeted to less than $1 per share by the end of November 2001. Few years later following its formation when Jeffery Skilling was hired, he developed a staff of executives that through the use of accounting loopholes, special purpose entitles and poor financial reporting, were able to hide billions in debt from failed deals and projects. They were able to mislead Enron’s’ board of directors and audit committee of high-risk accounting issues as well as pressure what was supposed to be and independent Certified Public Accounting Firm, the Author Anderson, to ignore the issues. The corporation went bankrupt as a result of committing institutionalized, systematic and well-planned accounting fraud. Since its fall, Enron has become a symbol of corporate fraud and corruptions. Corporate governance structures have traditionally been a private matter between...
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...Enron: The Fall Of A Wall Street Darling Read more: http://www.investopedia.com/articles/stocks/09/enron-collapse.asp?partner=basics120111#ixzz1fiw28U4O Enron is a company that reached dramatic heights, only to face a dizzying collapse. The story ends with the bankruptcy of one of America's largest corporations. Enron's collapse affected the lives of thousands of employees, many pension funds and shook Wall Street to its very core. To this day, many wonder how a company so big and so powerful disappeared almost overnight. How did it manage to fool the regulators and the Wall Street community for so long, with fake off-the-books corporations? What is the overall lasting impact that Enron has had on the investment community and the country in general? Tutorial: Introduction To Accounting Collapse of a Wall Street Darling By the fall of 2000, Enron was starting to crumble under its own weight. CEO Jeffrey Skilling had a way of hiding the financial losses of the trading business and other operations of the company; it was called mark-to-market accounting. This is used in the trading of securities, when you determine what the actual value of the security is at the moment. This can work well for securities, but it can be disastrous for other businesses. In Enron's case, the company would build an asset, such as a power plant, and immediately claim the projected profit on its books, even though it hadn't made one dime from it. If the revenue from the power plant was less...
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...The case of Enron Corporation and Andersen, LLP can be noted as one of the most infamous fraud scandals in US history. Investors lost millions of dollars and ruined the public’s trust. Enron was once the seventh largest public company in the United States and Andersen LLP was the world’s largest and most respected business organizations. Enron’s stock prices soared to approximately $100 to less than $10 in 2001. How did these two big giants fall into oblivion and what could have been done to avoid the disaster of these companies? Enron Corporation was formed as the result of the July 1985 merger of Houston National Gas and InterNorth of Omaha, Nebraska. Their headquarters were located in Houston, TX. In its earlier years, Enron was a natural gas pipeline company whose primary business strategy involved entering into contracts to deliver specified amounts of natural gas to businesses or utilities over a given period of time. Enron soon became involved in in the transmission and distribution of electricity in addition to gas in the US as well as the development, construction, and operation of power plants and pipelines worldwide. Enron’s CEO was Jeffrey Skilling who only held his position for six months and Kenneth Lay, who was the CEO/Chairman of Enron from 1996 through 2001, was reinstated to CEO after Skilling’s resignation due to “purely personal” reasons. Andersen. LLP was originally founded as Andersen, Delaney & Co. in 1913 by Arthur Andersen, an accounting professor...
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...1. Enron, an international energy company, faced a lot of business risks because of the industry they were in. Enron’s business model, an intermediary between buyers and sellers of energy and profiting off the price differences, was risky in itself because it exposed Enron to energy prices risks as well a fluctuating foreign currency. While continuing to expand their business, Enron began offering a variety of financial hedges and contracts to their customers. This new venture uncovered interest rate risks, environmental risks, and constant price wars. Enron Online launched in 1999, which revealed dangerous technological failure risks. Enron decided to use Special Purpose Entities for borrowed funds. These SPEs were a great risk because the likelihood of materially misstating their financial statements increased significantly due to liabilities not being reported as cash inflows were coming in. These SPEs, as well as many other business endeavors by Enron, relied heavily on their guarantees of stock. If stock prices were to fall under a certain level, obligations made by Enron would become payable (Seabury). Once Enron’s risks were realized the company experienced pressure to report more stable and prosperous financial statements. They wanted to continue attracting investors and increase their competiveness in the marketplace, which drove management to enter into aggressive accounting schemes that ultimately led to their downfall in 2001. 2. The case explains how Enron...
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