CASE #1 : ENRON’S FALL
1. State the facts of the case.
Enron is the Seventh- largest company in the united states but after six months, Enron filed for bankruptcy, the outcome of what has been called the greatest accounting fraud of the 20th century. Twelve thousand employees lost not only their jobs but their entire retirement and life savings, which had been invested in Enron Stocks. Other owners of Enron’s stocks—including thousands of ordinary Americans whose pension were also invested in Enron’s Stock—lost a total of $70 billion when the value of their stocks collapsed to zero.
2. What are the systemic, corporate and individual issues raised by this case? Systemic Issues:
The Enron’s greatest accounting fraud was done by the person inside the company who was indeed in a higher position. This is not only a crime in the point of view of law but also an organizational fraud which affect everyone in the organization, including the shareholders, stockholders, and employees. Corporate Issues:
The accounting frauds was done by creating the Special Purpose Entity that covers the debt and failing investment in the company and turn it into sales revenue in the financial statement. In simplest way, they turn their liabilities to an asset. This is done through some executives of Enron with the help of Arthur Andersen, the chief auditor of Enron. Andersen violated the Public Accountant practices. Individual Issues:
A moral Hazard caused by individual of Enron and the public revelation of Sherron Watkins in everything she knew about the malpractices in the company.
3. If the value of Enron’s Stock had not fallen, the Special Purpose Entities perhaps could have continued to operate indefinitely. Suppose that Enron’s stocks did not fall, and suppose that its accounting adhered to the letter, if not the spirit, of GAAP rules. In that case in your view, was there anything with what Enron did? Explain.
If the practice was...