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MBA Program

FN5202: Advanced Corporate Finance

Report: Enron accounting fraud

In October 2001 it was revealed that reported financial condition of Enron Corporation was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud. Enron misrepresented its profits and was accused for a range of shady dealings, including concealing debts so they didn't record it in the company's accounts. On December 2, 2001 the Enron Corporation announced about its bankruptcy and dissolution of Arthur Andersen. Additional to the bankruptcy, the company was recognized as the biggest audit failure in American history of audit. The Chairman of the board, Kenneth Lay, and CEO, Jeffrey Skilling hired the CFO, Andrew Fastow, and allow him to develop a staff of executives that, through the use of accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron's board of directors and audit committee on high-risk accounting practices, but also pressured Arthur Andersen to ignore the issues. Enron was founded in 1985 by Kenneth Lay in Omaha, Nebraska. It was formed as a result of merger of Houston Natural Gas and Inter North and it became one of the world's leading electricity, natural gas, communications and paper issuing company. Within 15 years, Enron raised be America's seventh largest company, with the 21,000 staff in more than 40 countries. Over period of late 1990s, Enron was one of the country's most innovative companies. Besides, the building of power plants and operations gas lines, it became known for its unique trading businesses. It implemented a new market, broadcast time for advertisers, weather futures, and Internet bandwidth.

The company raised annual...
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