How it happened? 2
Financial Reporting Issues 3
Trading Business and Mark to Marketing 3
Reporting Issues for Special Purpose Entities 3
Other Accounting Problems 4
Governance and Intermediation Failures at Enron 4
Role of Top Management Compensation 4
Role of Audit Committees 4
Role of External Auditors 4
Role of Fund Managers 5
Role of Accounting Regulations 5
The Sarbanes Oxley Act 5
Did it help? 5
Kenneth Lay formed Enron in 1985, when InterNorth acquired Houston Natural Gas. It was once the seventh largest company the United States of America. Enron branched into many non-energy-related fields over the next several years, including such areas as Internet bandwidth, risk management, and weather derivatives (a type of weather insurance for seasonal businesses). Although their core business remained in the transmission and distribution of power, their phenomenal growth was occurring through their other interests. Fortune Magazine selected Enron as "America's most innovative company" for six straight years from 1996 to 2001. Then came the investigations into their complex network of offshore partnerships and accounting practices.
The Enron scandal was revealed in October 2001 that eventually led to the bankruptcy of the Enron Corporation and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure. Several years after it inception when, in 1992, Jeffrey Skilling was hired as the President of the company, he 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... [continues]
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