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Enron
The answer to the first question is that the executives at Enron committed accounting fraud. The company had grown rapidly to become one of the largest firms in the United States, theoretically building a business in energy trading. Even before the scandal broke, the company did not produce accurate financial statements, if it produced them at all. The company used a number of unorthodox techniques to create its financial statements, essentially distorting the statements so that they did not accurately reflect the company's business.
The three basic things that Enron did were to create special purpose entities to hide the company's debt; recording transactions improperly to make the company's revenues appear larger than they were; and adopted unusual techniques for accounting such as the use of mark-to-market accounting for non-financial projects. These different techniques made the company's revenue look larger than they were, and made Enron's debt look smaller. This allowed it to continue to borrow, thereby defrauding the company's creditors.
The company's attitude towards ethics was demonstrated in its response to criticisms about its lack of transparency. The company claimed it did not want anybody to know how it made its money. In addition to contradicting SEC policy...
The CEO used a term that cannot be printed here to describe an analyst who questioned why Enron did not have a balance sheet.
One of the more notable failures at Enron was with its external auditor, Arthur Andersen. That firm overlooked all of Enron's shady accounting practices because it had a lucrative consulting business with the firm. This eventually led to the downfall of Arthur Andersen when Enron finally collapsed, as clearly it had not performed its role as auditor professionally.
The second question is a good one. There are a number of explanations for why Enron happened. Certainly, the regulatory environment was favorable. Not only where the business media largely enamored with Enron because of its apparent performance, but the regulatory community was as well. The SEC approved its use of mark-to-market accounting for energy derivatives, but just as important was the fact that the SEC failed to hold Enron accountable for not producing a balance sheet and for the questionable nature of its other financial statements. This helped to facilitate a culture that already existed within Enron.
The Enron corporate culture was essentially one of arrogance and a total…
The deregulation was forced through by legislators to whom Enron paid out massive contributions..." (Levy, 2005) The fraud was primarily comprised of "cooking the books to make it look as if the company's finances were consistently rosy, so that share prices would steadily keep rising." (Levy, 2005) More than 30 individuals have received criminal charges since 2001 connected to their dealing with Enron which incidentally "was just one of several
This caused the California Energy crisis to become worse by: encouraging traders to engage in actions that would directly increase the wholesale costs. Despite the fact, that there were more than enough supplies to deal with the situation. As a result, traders embraced the directives of Skilling and the company itself by overlooking the ethics of society and focusing on those of the organization. (Cline, 2011) ("Business Ethics," n.d.,
Later in the year, this same task force, including Cheney, recommended Enron as a company that was upstanding and endorses its many proposals. This further complicated the Enron image giving it further clout to conduct business in an unethical manner. By the end of this year, many of Enron's top executives, including Skilling, begin selling off their shares of company stock. This occurs before it is revealed to shareholders
Enron could engage in their derivative trading strategy with no fear of government intervention because derivative trading was specifically exempted from government regulation. Due in part to a ruling by the Commodity Futures Trading Commission's (CFTC) chairwoman, Wendy Graham, derivatives remained free of regulatory oversight. Ms. Graham, wife of Texas senator Phil Graham, made this ruling 5 weeks before resigning as chairwoman of the CFTC and joining the Enron Board
Enron Scandal: Who was Responsible and Why? Background of Enron Scandal and Timeline of Events Key Players in Enron Scandal The Enron Scandal was the biggest accounting fraud in U.S., indeed worldwide, business history. The following paper gives a brief history of the events leading up to the scandal, a timeline for the events surrounding the uncovering of the scandal and the events following the public knowledge of the scandal. Key players in
Enron Identify one of the examples of financial reporting misconduct associated with the Enron scandal In the wake of the stratospheric success and subsequent fall of Enron, many were compelled to ask: how could this be possible, namely how could a firm which seemed so successful on the surface be so corrupt at its core? The answer, although not simple, can be boiled down to this: creative financial accounting. While Enron deployed