Enron and Parmalat

Topics: Enron, Arthur Andersen, Calisto Tanzi Pages: 4 (987 words) Published: November 12, 2013

Managua, Nicaragua
Sept 28th, 2013
ENRON
Background
In 1985 Kenneth Lay merged his company, Houston Natural Gas, with Nebraska’s InterNorth to create the Enron; a company to be the biggest natural gass corporation to exist in the U.S. During the 1980’s, under the presidency of Ronald Raegan, there was a considerable lack of regulations regarding the energy markets, thus allowing the company to buy and sell contracts for a delivery at some time in the future. By 1990 Jeffery Skilling joined as a former consultant, eventually to become Enron’s COO (Chief Operating Officer). His participation encouraged the incentive of making the company more focused for contracts for delivery of energy as well as change accounting procedures to ‘’market-to-market’’ accounting, which allowed Enron to ‘’account for profits from long-term contracts in the first year of the contract’’. ‘’Gas prices would stabilize, further cementing Enron’s appearance as a crucial firm’’. (Jason Reeher, n.d.) Although Enron was the biggest natural gas company in the country by 1992, there was problems to come regarding the Enron’s trading division was not being able to make profit. To make problems worse, Andrew Fastow, the former Chief Financial Officer of the company, created ‘’separate business entities that were not reflected in the main company´s financial statements. Despite auditing Enron´s books, Arthur Andersen did not disclose this fact to investors at the time’’, hence initiating the very downfall of the once successful company; allegedly only to its façade. (Jason Reeher, n.d.)

Downfall
According the Michael Staton’s article about ENRON’s pitfall, there are to main reasons to be labeled: 1. Investment

According to Michael, the main cause that led to Enron’s utter collapse was related to failed investments regarding fiber-optic networks, power plants in India and water distribution in the United Kingdom, among other ones. Though a company as big as Enron could afford...
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