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The Enron scandal was an accounting scandal involving Enron Corporation , an American energy company based in Houston , Texas. Upon being publicized in October , the company declared bankruptcy and its accounting firm, Arthur Andersen — then one of the five largest audit and accountancy partnerships in the world — was effectively dissolved. In addition to being the largest bankruptcy reorganization in U. Several years later, when Jeffrey Skilling was hired, Lay 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 Andrew Fastow and other executives misled Enron's board of directors and audit committee on high-risk accounting practices and pressured Arthur Andersen to ignore the issues. Securities and Exchange Commission SEC began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a very low price. Many executives at Enron were indicted for a variety of charges and some were later sentenced to prison. Arthur Andersen was found guilty of illegally destroying documents relevant to the SEC investigation, which voided its license to audit public companies and effectively closed the firm.The summary of the Enron scandal is one of the most famous corporate scandals in history. Enron Scandal And Its Impact On The refers Itss certain events that led to the bankruptcy of the American Energy, commodities, and services company Enron. This article will give a summary of the Enron Scandal and how it affected the various parties involved. Read: The PayPal Mafia. Kenneth Lay founded Enron in Lay quickly converted Enron into an energy trader click here supplier when he took over as CEO of the company.
Deregulation of the energy markets in the 90s allowed companies to place bets on future prices, and Enron decided to take full advantage. Skilling joined Enron at a strange time, with the dotcom bubble in full swing. Internet companies had sky-high stocks and the trend to create your own website was at an all-time high.
Enron’s Origins
Hence, EOL was marked as an incredibly innovative venture at the time. Furthermore, Jeff Skilling made Enron shift their accounting practices from the Historical method to a Market-to-market method. This would provide the company with a more realistic valuation and analysis of their current financial system. Read more the fall ofEnron was starting to crumble under its own success. CEO Jeffrey Skilling hid the financial losses of the trading business and other operations of the company using mark-to-market accounting, as mentioned above. This technique measures the value of a security based on its current market value instead of its book value. Hence, it could be potentially Enron Scandal And Its Impact On The for businesses that do not trade actual securities.
For Enron, these accounting practices help them deceive investors and other stakeholders.
The Enron Scandal and Ethical Issues
The company would create an asset such as a power plant, and straight away claim the expected profit on its books. Hence, even if the project or asset were to become unprofitable, its projected profits would be shown to make it seem successful.
Similar fraudulent accounting activities were undertaken by the company to make themselves seem more profitable than they actually were. By the summer ofEnron was in freefall. The SEC started their investigation into the company and found startling results. Enron filed for bankruptcy after Dynegy backed out of a merger deal in Novemberwith the company filing for bankruptcy in December. The company helped Enron hide its actual financial performance and showcase profitability to the rest of the world. David B. Hence, this was surprising considering Anderson was one of the top 5 accounting firms in the US at the time. Moreover, the firm kept on giving the seal of approval to Enron for their accounting practices, knowing very well how disastrous it could be.
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Hence, the firm was shut down along with Enron. They would face criminal charges which would prove to be their demise. This was a summary regarding the Enron Scandal. This was one of the biggest business scandals in history.
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