Case Study sample - Enron Scandal

Case Study
Pages 20 (5020 words)
Download 0
The paper discusses the Enron scandal and its immediate consequences as well as the new legislation issued as a result of several fraud scandals: Sarbanes-Oxley Act. Enron Corp. is known as one of the largest scandals in U.S. history. As a result of the investigations and after a long trial, Enron's former chief executive, Jeffrey Skilling was sentenced to 24 years in jail.


While the bankruptcy of a small company is taken as a routine, Enron's case is different as the company was ranked seventh by Fortune 5001 .
During the 1990s, Enron expended quickly into several areas such as developing a power plant and a pipeline. This expansion, however, required large initial capital investments and long gestation period. By that time, Enron already raised a lot of debt funds from the market and hence any other attempt to raise funds would affect Enron's credit rating. But Enron had to maintain the credit ranking at investment rate in order to continue business. On top of that, the company wasn't making enough profits either, as it promised to investors. Hence, Enron began making partnerships and other special "arrangements" (Special Purpose Entity, or SPE). These companies were used to keep Enron's debts and losses away from its balance sheets, therefore allowing it have a good credit rating and look good in front of the investors.
Enron's goal was to bypass the rules of consolidation and still increase credibility. If a parent company (in this case Enron) financed less than 97% of an initial investment in a SPE, it didn't have to consolidate in into its own accounts. ...
Download paper
Not exactly what you need?

Related papers

The Enron Scandal: The Failure of Arthur Anderson and Its Impact on the Accounting Policy
Moreover, the project will also ascertain the impacts which are posed in the business environment after the collapse of Arthur Andersen in the global context. There are various reasons or factors which are recognised to be accountable for the closure of the auditing firm. The reasons are related to unethical business practices and criminal offence for acknowledging misleading financial statements…
26 pages (6526 words)
Enron Corporation Assignment
Its CEO Ken Lay was one of President George W. Bush’s personal friends. Both Ken Lay and CFO Jeff Skilling and later Andrew Fastow were regarded as leaders to emulate. Smart, suave and ambitious, they were regarded as the embodiment of corporate success. But a series of events quickly turned the tables on the fortunes of this billion dollar company and its management. In fact, even its auditors…
3 pages (753 words)
Ethics in the Enron Company
More reprehensible is the attempt of the top corporate hierarchy to feign total innocence throughout the investigation and blame everything on their subordinates. In the light of the Enron scandal, the US Congress immediately passed a law that would reform and revamp corporate practices in the country. Background: The History of Enron Enron began as a small energy company in Houston in 1985…
3 pages (753 words)
Enron Corporation
Executive Summary Some stories are so unbelievable that they become Hollywood movies. One of those stories is the Enron scandal. The movie called Enron the Smartest Guys in the Room was created based on the Enron story. Enron was once the biggest company in the energy industry, but a complex fraudulent scheme that began many years prior to the revelation of the fraud led to its demise. The…
6 pages (1506 words)
More to the point, Arthur Andersen partnership was also dissolved at the time. Arthur Andersen was one of the five biggest audit and accountancy firms globally during the scandal (Li 37). Enron executives, particularly Jeff skilling as well as Andy Fastow, were key to Enron plunging into bankruptcy as well as ultimately dissolution. The acts include: market to market accounting as well as special…
5 pages (1255 words)
Lessons from Enron for British Business
Another accounting gap, which was discovered from the Enron's balance sheet, was the recording of the note receivable as an asset. These were the promises to pay the equity claim in the limited partnerships, which Enron recorded as assets even though GAAP requires subscribed equity to be reported as a contra-stockholders' equity account, rather than as a note receivable. Once it was accused of…
11 pages (2761 words)