Table of Contents
c. The Success
d. All that glitters is not gold
e. The Fraud
4. Enron Scandal – The Company Fraud
f. What Happed?
5. Techniques used in the Company Fraud
g. Revenue Recognition
h. Mark-to-market accounting
i. Special Purpose Entities
j. Executive Compensation
k. Risk Management
l. Financial Audit
m. Audit Committee
n. Other Accounting Procedures
o. Change in Stock Price
The Enron scandal is the name given to financial scandal Enron Corporation, an American energy company was involved in. the scandal eventually led the company to bankruptcy and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. This was the largest bankruptcy reorganization in American history at that time in 2001 and Enron was also accredited as the biggest audit failure.
Enron Corporation was an American energy, commodities, and Services Company based in Houston, Texas. Before its bankruptcy on December 2001, Enron was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001, it was revealed that it’s reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal". Enron has since become famous for wilful corporate fraud and corruption. The scandal led to doubt the accounting practices and activities of many corporations throughout the United States. The scandal also affected the wider business world by causing the dissolution of the Arthur Andersen accounting firm.
Enron filed for bankruptcy protection in New York in late 2001. It emerged from bankruptcy in November 2004, pursuant to a court-approved plan of reorganization, after one of the biggest and most complex bankruptcy cases in U.S. history. A new board of directors changed the name of Enron to Enron Creditors Recovery Corp., and focused on reorganizing and liquidating certain operations and assets of the pre-bankruptcy Enron. By September 2006, Enron sold Prisma Energy International Inc., its last remaining business, to Ashmore Energy International Ltd.
The Northern Natural Gas Company was formed in 1932, in Omaha, Nebraska was reorganized in 1979 as the leading subsidiary of a holding company, InterNorth a highly diversified energy and energy related products company. Internorth was a leader in natural gas production, transmission and marketing as well as natural gas liquids and an innovator in the plastics industry. In 1985, it bought the smaller and less diversified Houston Natural Gas.
The separate company initially named itself "HNG/InterNorth Inc." until it was sold to Physicians Mutual. The merger led former HNG CEO Kenneth Lay to become the CEO of the newly merged company. Lay soon moved the company's headquarters to Houston from Omaha and began to thoroughly re-brand the business. Lay and his secretary, Nancy McNeil, originally selected the name "Enteron" (possibly spelled in camel case as "EnterOn"), but, when it was pointed out that the term approximated a Greek word referring to the intestines, it was quickly shortened to "Enron".
Enron was originally involved in transmitting and distributing electricity and natural gas throughout the United States. The company developed, built, and operated power...
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