Enron Collapse

Topics: Enron scandal, Finance, Stock Pages: 1 (320 words) Published: November 9, 2012
1.What are the main reasons that Enron collapsed?
I think the reasons for the collapse are three fold.
Firstly Enron’s accounting practices(mark to market accounting- companies estimate how much revenue a deal is going to bring in and state that number in their earnings the moment the contract is signed) Its managements goal was to maintain the appearance of value by always having rising stock prices rather than focus on creating real value for the company.

Secondly its reliance on Special Purpose Entities to constantly raise capital without increasing its indebtedness. It allowed losses to be kept off the books while assets to be stated. Enron had its own executives manage these partnerships and would make the deals work by guaranteeing that if whatever they had to sell off declined in value, enron would make up the difference in its own stock. So basically it was selling part of itself to itself. It was these financial bolications to the SPE’s that ended up triggering the collapse. Thirdly its lack of a truly independent auditor to stand up to Enron ultimately caused its downfall.

2.Do you think Enron could have survived?
I think if the company had acted internally when Sharon Watkins reported suspicious accounting, and dealt with it internally , Im sure the share prices would have dropped upon reporting of the actual financials but maybe the company could have avoided bankruptcy. 3.Crisis Management Consultant of Arthur Anderson, what would your advice be to the CEO? I think I would have admitted the absurdity of performing both auditing and consulting functions

I maybe would have focused on the hiring of of Arthur anderson employees as enron employees, who then managed the affairs of their old colleagues. Ethical lines got blurred. Then use this platform to lead the industry to reforms and act oversear of how to avoid their mistakes and breakdowns of communication within their corporation.
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