Enron once was one the United States largest energy company and was ranked Fortune’s seventh richest corporation in the United States. When Enron had a filed for Chapter 11 bankruptcy in 2001 it unraveled to be one the biggest accounting scandals in United States history. There are many factors that contributed to Enron’s demise but their aggressive and unethical accounting practices were the key component. As a result, the accounting industry has made major improvements to ensure that an accounting scandal this bid could never happen again.
Enron was formed when natural gas pipeline companies Houston Gas and InterNorth Inc, merged in 1985. The original headquarters where in Omaha, Nebraska but after the merge they immediately relocated to Houston, Texas. Enron had provided a 38,000 mile gas transmission system which made it the largest in the United States. The merge of the two companies resulted in a lot of debt which urged the executives to expand. Enron had rapidly transformed from a gas pipeline company into a global energy trader.
The bad accounting practice that led to Enron’s demise had started in the early years of the company. In 1987, Enron had faces its first scandal which is known as the “Valhalla Scandal”. Enron had an oil trading company in Valhalla New York called Enron Oil Trading, which was ran Louis Borget who was the president and Tom Mastroeni, the treasurer. Both Borget and Mastroeni were misappropriating funds by opening undisclosed bank accounts in order to do unauthorized transaction. Also, about 2 million dollars of Enron Oil Trading’s money were transferred into Mastroeni’s personal account. They were also manipulating the books to make it seem as if the profits were steady but in reality had been trading beyond their limits. Arthur Andersen, Enron’s auditor, had discovered this misappropriation of funds and had notified the audit committee Instead of disclosing this information