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Finance and Accounting : Corporate Financial Scandals - Research Paper Example

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Finance and Accounting : Corporate Financial Scandals

At a point Enron was one of the seventh largest corporations in The United States. Enron was a shining star on Wall Street, and from 1996 to the early 2000’s it was named America’s “Best Managed and Most Innovative Company” by Fortune Magazine. The scandal was revealed in October 2001 and lead to the bankruptcy of Enron Corporation; which sent... a huge wave of shock in the business world from its investors, to employees. Enron's collapse affected the lives of thousands of employees, many pension funds and shook Wall Street to its very core (Seabury). It also lead to the break up Arthur Anderson which was the 5th largest audit and accounting partnership in the world at that time. Many people have wondered how companies as big and successful as Enron can fail. It was the biggest audit failure and also the largest bankruptcy in American history of its time. By the late 2000 Enron had begun to crumble and fall apart. Jeffrey Skilling who was the CEO of Enron at that time was found scandalous in terms of hiding financial losses of the trading market and other aspects of the company by mark to market accounting. Mark to market is trading of securities when an individual determines what the actual value of the security is at that current moment. This can be harmful for other business but can work well for the securities. Mr. Skilling made a team of executives that which through the use of accounting loopholes and poor financial reporting was able to hide billions of losses from failed deals and projects. Enron’s board of directors and audit committee were misled by CFO, Andrew Fartow and other executives on high risk accounting practices. Moreover, the external auditor Arthur Anderson was also pressured to ignore such issues. Enron share price which had hit a high of $90 per share in mid 2000 fell to less than $1 a share by the end of November 2001 and share holders lost nearly $11 billion dollars. The US Security and Exchange Commission began an investigation and at the same time Dynegy, Enron’s Houston based competitor offered to buy Enron at a garage sale price. However, the deal fell through and on December 2001 Enron filed for bankruptcy. At that time, with assets of $63.4 billion, it was the largest corporate bankruptcy is US history. Many Enron executives were indicted for a variety of charges and sentenced to jail. A US court also found Arthur Anderson guilty but the ruling was later over turned by the ...Show more
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Summary

Everything about Enron seemed larger than life. From its glittering Houston head quarter reaching to the sky to its spectacular downfall. But Enron’s collapse was more than just a shattering of one American success story. Enron was the climax of an avalanche of American companies that cost investors as much as 200 billion dollars by issuing deceptive financial reports…
Finance and Accounting Research Paper: Corporate Financial Scandals
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