Nicholas Barton
00343164
Accounting 2600
Case Study: The Enron Collapse
“Why was it that Enron, a financial services company, in effect, could not release a balance sheet with their earnings statement?” -Jim Chanos, President Kynikos Associates.
In the film “Enron: The Smartest Guys in The Room,” analyst Jim Chanos asks why, the 7th largest company in the world at the time, could not supply investors with basic financial statements. These statements as we learn in accounting are the fundamental tools through which we communicate a corporation’s financial position. So why was it that a corporation valued as much as $70 Billion at one time would have ever achieved such success without performing basic accounting functions? The CEO, Jeff Skilling’s caustic reply to the question foreshadowed the collapse of a company that had been built on lies and deceit. While the Enron scandal is one of the best known in the history of international business, the reasons for the collapse were built into the company from its very roots. I will begin with an overview of the company and the ensuing scandal, as well as touching on many of the events that led up to the collapse of the company. I will also touch on events that contributed to the company’s inflated stock prices and their unethical and often desperate business practices that undermined the foundation of their business. The aforementioned film, Enron: The Smartest Guys in The Room was an excellent resource as it was primarily historical footage and first-hand accounts from individuals involved with the scandal. (http://www.youtube.com/watch?v=_xIO731MAO4)
Enron was founded as a result of a merger of gas companies in 1985. Founded by Kenneth Lay it originated in Omaha Nebraska. Despite promising to keep the headquarters in Omaha, Lay almost immediately moved the company to Houston Texas where they began consolidating