Enron Case study in OL1150 Unit 4
Accounting methods have changed over the last couple decades. Numerous Fortune 500 companies were concealing debt in an accounting method known as mark-to-market (Ferrell, O. C., Hirt, G. A., & Ferrell, L. 2005). Enron was one of several companies that was hiding their debt, while reporting annual earnings of $111 billion. Many Fortune 500 companies went under fire in the early 2000’s for their misleading accounting methods, leading investors to believe the company was making billions; in which the government step-in, and created the Sarbanes-Oxley Act (SOX) of 2002.
In early 2000’s, numerous Fortune 500 companies, Enron, WorldCom, Arthur Anderson and Adelphia and others, were alleged practicing complex accounting methods to cover their huge debt, while claiming they were making billions of dollars (Ferrell, O. C., Hirt, G. A., & Ferrell, L. 2005). However, the accounting profession faced severe criticism and lack of respect in the profession when these Fortune 500 companies started to crumble. The accounting profession faced a major over-haul at this time (Reinstein, A., & Weirich, T., 2002). However, the accountants could not take all the blame, because Enron, Anderson, and the other company executives was focused on the “letter of the law” rather than the proposed accounting appeared ethical and “fair.” Consequently, this lead to numerous Fortune 500 companies in one of the largest scandals in news history.
Enron, WorldCom, and the other Fortune 500 companies lead the public (including current and future investors) to believe that they were profiting billions annually, while covering-up their huge amounts of debt. Large companies, like Enron, “conceal their debt through complex schemes of off-balance-sheets partnerships and the use of a method of accounting called mark-to-market” (Ferrell, O. C., Hirt, G. A., & Ferrell, L. 2005). Therefore, this method of mark-to-market hind the company’s debt from their investors....
Please join StudyMode to read the full document