Enron Case

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  • Topic: Enron, Enron scandal, Arthur Andersen
  • Pages : 9 (2928 words )
  • Download(s) : 60
  • Published : January 23, 2013
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Executive Summary

The United States that have been considered as a super power country and also the direction of science disciplines including accounting must felt bitterness. Business scandals that happened seemed eliminate confidence by the business world about the practice of good corporate governance in the United States. Enron was a company that was ranked as seventh out of the five hundred leading companies in the United States and is the largest U.S. energy company that went bankrupt leaving debts amounting to nearly U.S. $ 31.2 billion. In instance with the case of Enron known occurrence of moral threat behavior such as manipulation of financial statements with a record 600 million dollar profit when the company suffered a loss. Manipulation of profits caused by the desire companies to keep stock investor demand, these such embarrassing cases involving people apparently involved in the White House, including the vice president of the United States. Securities Exchange Commission (SEC), the capital market watchdog, smell something was wrong and started to roll out the investigation. In a desperate condition, Enron surprised the worldwide on 8 November 2001 when it admitted that its profits for this are just a fiction. Enron revised its financial statements the last five years and posted a loss of U.S. $ 586 million as well as additional notes by U.S. $ 2.5 billion. However, in late November 2001, Enron can breathe a little sigh of relief when Dynegy Inc., which is much smaller competitors, intends to buy shares in a merger agreement. Dynegy withdrew after Enron increasingly losing confidence in investors and credit rating fell to its lowest-status "junk-bond". When nothing less than a quarter of a billion sheets of shares exchanged on the stock exchange, the price of Enron slid into the abyss. Enron stock in August 2000 was worth U.S. $ 90 per share, fell fall to no more than U.S. $ 45 cents. Finally after awhile, on December 2, 2001 Enron gave up and declare bankruptcy petitions.

Introduction

For the first time ever, the seventh largest company in America called Enron was formed in 1985 when InterNorth acquired Houston Natural Gas. After several years, the company decides to split up into branch in order to make many non-energy-related fields, including such areas as Internet bandwidth, risk management, and weather derivatives (a type of weather insurance for seasonal businesses). Even though Enron remain in the transmission and distribution power as their core, 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 off-shore partnerships and accounting practices. But this as the company growth, the former chief executive of Enron’s trading, Jeffrey Skilling, change the accounting method that known as “mark to market”, it is thought that this technique was used to inflate revenue numbers by manipulating projections for future revenue. The Enron scandal is considered as one of the biggest corporate scandals in the United States history.  It was initially voted as America’s Most Innovative Company from 1996 to 2002.  However, in 2001 several events led the Securities Exchange Commission to become suspicious of Enron’s accounting practices as well as the valuation of its corporate assets.  The first is the cancellation of the deal with Blockbuster, Inc., which was followed by the resignation of Jeffrey Skilling.

Main Report

Scandal Methodology

Only fifteen years needed for Enron to grew from nowhere to be America's seventh largest company, with 21,000 staffs in more than 40 countries. But as Enron growth, the firm’s accomplishment turn out to complicated economical condition because of an elaborate scam. Enron lied about its profits and stands accused of a...
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