Enron Case
The Enron Accounting Scandal
Presented By: Jennifer Buondonno Nirmala David Robert Pufky Matt Rollings
ENRON Page 1 of 27
Table of Contents
Executive Summary……………………………………………………………..3 (I) Introduction to the Enron case and the organizations involved……. 5 Background information & industry…………………………………………….. 5 Organizations and officers involved……………………………………………..6 Accounting firm and partners involved………………………………………….8 Enron’s industry………………………………………………………………….. 9 Enron’s injured parties…………………………………………………………… 10 (II) Enron’s accounting fraud and misrepresentation……………………. 11 Explanation of the fraud…………………………………………………………. 11 Damages incurred…………………………………………………………………12 Final outcome of the Case………………………………………………………. 13 How the fraud was discovered………………………………………………….. 13 (III) Enron’s Influences and Ethical Concerns…………………………….. 14 (IV) Enron’s poor decisions and the better alternatives………………….18 (V) The lesson to be learned from Enron……………………………………22 References…………………………………………………………………………25 Group Activity Log ………………………………………………………………..27
ENRON Page 2 of 27
Executive Summary Enron was founded originally as a natural gas pipeline company in Houston, Texas in 1985 and quickly expanded into creating a market for itself – the energy trade. Their business included many long term risky investments that had no short term revenues, which lead the company to create special purpose entities (SPE’s) to spread the risk of these investments. Although this spread of risk was in itself not illegal, the way the SPE’s were created and ultimately managed was. To create these illegal SPE’s, Enron used the 3% rule (EITF 90-15), which states that 3% of subsidiary’s startup capital must come from an outside investor; Enron actually received this outside investment from managers in Enron or their wives. Enron’s auditor has also been accused of conducting business in an unethical manner in its attempt to retain the loyalty of Enron executives. Current laws and SEC
Presented By: Jennifer Buondonno Nirmala David Robert Pufky Matt Rollings
ENRON Page 1 of 27
Table of Contents
Executive Summary……………………………………………………………..3 (I) Introduction to the Enron case and the organizations involved……. 5 Background information & industry…………………………………………….. 5 Organizations and officers involved……………………………………………..6 Accounting firm and partners involved………………………………………….8 Enron’s industry………………………………………………………………….. 9 Enron’s injured parties…………………………………………………………… 10 (II) Enron’s accounting fraud and misrepresentation……………………. 11 Explanation of the fraud…………………………………………………………. 11 Damages incurred…………………………………………………………………12 Final outcome of the Case………………………………………………………. 13 How the fraud was discovered………………………………………………….. 13 (III) Enron’s Influences and Ethical Concerns…………………………….. 14 (IV) Enron’s poor decisions and the better alternatives………………….18 (V) The lesson to be learned from Enron……………………………………22 References…………………………………………………………………………25 Group Activity Log ………………………………………………………………..27
ENRON Page 2 of 27
Executive Summary Enron was founded originally as a natural gas pipeline company in Houston, Texas in 1985 and quickly expanded into creating a market for itself – the energy trade. Their business included many long term risky investments that had no short term revenues, which lead the company to create special purpose entities (SPE’s) to spread the risk of these investments. Although this spread of risk was in itself not illegal, the way the SPE’s were created and ultimately managed was. To create these illegal SPE’s, Enron used the 3% rule (EITF 90-15), which states that 3% of subsidiary’s startup capital must come from an outside investor; Enron actually received this outside investment from managers in Enron or their wives. Enron’s auditor has also been accused of conducting business in an unethical manner in its attempt to retain the loyalty of Enron executives. Current laws and SEC