...Enron Corporation was established in 1985 by Ken Lay after merging Houston Natural Gas and Internorth, it has more than 20,000 employees and it's one of the seven largest electricity, natural gas company. Before it went to bankruptcy, Enron claimed revenues of almost $101 billion in 2000, placed Enron at sixth on the Fortune Global 500, it also named "America's most innovative company" for the past six years(1996-2001). In 10/22/2001, The "street.com website pronounced a message revealed the complex financial transaction between Enron and Osprey Co., through Osprey, Enron debited 340 billion dollars"○1 which never appeared in the financial statement. At the same time, SEC began to investigate Enron, thus, the Enron's accounting scandal finally above the water. The first person who became the whistleblower disclosure Enron's financial fraud was Watkins and Cooper, although the CFO asked cooper to postpone her investigation, Cooper still doing her audit to alert the board about the financial statement problems, at the meantime, Watkins outlined the problems in a memo to Ken Lay, "but by the time Watkins and Cooper blew the whistle, much damage had already been done and the shareholders and employees were the ultimate losers."○2 Whistleblower program is very important to minimum a corporation's hazardous activities, but the blower often face some awkward situations, such as fear of the manager's retaliation, fear to be treat as a betrayer by the workmates, unwilling to be...
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...| The Enron Scandal | | Introduction Enron Corporation was an American energy, commodities and services company based in Houston, Texas. From the 1990's until December 2001, Enron was famous throughout the business world and was named by Fortune as "America's Most Innovative Company" for six consecutive years. It grew wealthy due largely to marketing, promoting power, and its high stock price. Before its bankruptcy, Enron employed about 21,000 staff in forty countries and was one of the world's major electricity, natural gas, communications, and pulp and paper companies, which claimed revenues of $100.8 billion in 2000. Enron gave the illusion that it was a steady company with good revenue which was not the case, as a large part of its profits were made on paper through a creatively planned accounting fraud. Deep debt and surfacing information about hiding losses gave the company big problems and in the late 2001 Enron declared bankruptcy under the United States Bankruptcy Code. The collapse was followed by a series of revelations on how the executives manipulated Enron's success. The Fraud Schemes The Enron scandal, revealed in October 2001 was a management fraud involving top executives of Enron who deliberately manipulated the accounting structures in order to conceal their losses and debts so that the corporation appeared to be performing favourably. They adopted mark-to-market accounting, an accounting system based on market value, which was then inflated; the...
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...------------------------------------------------- ENRON SCANDAL Enron’s Accounting Methods April 30, 2015 Acct 301-d02 LUO [Company address] April 30, 2015 Acct 301-d02 LUO [Company address] Melissa Vest Liberty University I. Introduction: Enron used many legal accounting practices to commit fraudulent accounting activities II. The genius, or ingenious, accounting methods Enron used: 1. Special purpose entities a. Synthetic leases b. FAS 140’s 2. Hedges 3. Share trust transactions 4. Minority interests 5. Prepays 6. Mark-to-market 7. Stock Games III. Conclusion: The beginning of the end Enron Scandal I have always tried to do the right thing, but where there was once great pride, now it’s gone. —From the suicide note of JOHN CLIFFORD BAXTER, Enron’s former vice chairman I. Enron used many legal accounting practices to commit fraudulent accounting activities: Enron was on the road to success when only a couple bad decisions were made that seemed to cause a panic that had them hiding and covering until the hole was too deep for them to climb out of. Was it optimism or cynicism that got Enron into the mess that ultimately destroyed it? II. The genius, or ingenious, accounting methods Enron used: “Enron executives applied for – and were subsequently granted – government deregulation. As a result of this declaration of deregulation, Enron executives were permitted to maintain agency over the earnings...
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...Case Study: Enron Background Once the seventh largest company in America, Enron was formed in 1985 when InterNorth acquired Houston Natural Gas. The company branched into many non-energy-related fields over the next several years, including such areas as Internet bandwidth, risk management, and weather derivatives (a type of weather insurance for seasonal businesses). Although their core business remained in the transmission and distribution of power, their phenomenal growth was occurring through their other interests. Fortune Magazine selected Enron as "America's most innovative company" for six straight years from 1996 to 2001. Then came the investigations into their complex network of off-shore partnerships and accounting practices. How the Fraud Happened The Enron fraud case is extremely complex. Some say Enron's demise is rooted in the fact that in 1992, Jeff Skilling, then president of Enron's trading operations, convinced federal regulators to permit Enron to use an accounting method known as "mark to market." This was a technique that was previously only used by brokerage and trading companies. With mark to market accounting, the price or value of a security is recorded on a daily basis to calculate profits and losses. Using this method allowed Enron to count projected earnings from long-term energy contracts as current income. This was money that might not be collected for many years. It is thought that this technique was used to inflate revenue numbers by...
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...Enron Corporation (former NYSE ticker symbol ENE) was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,000 staff and was one of the world's major electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $101 billion during 2000.[1] Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001, it was revealed that its reported financial condition was sustained substantially by an institutionalized, systematic, and creatively planned accounting fraud, known since as the Enron scandal. Enron has since become a well-known example of willful corporate fraud and corruption. The scandal also brought into question the accounting practices and activities of many corporations in the United States and was a factor in the creation of the Sarbanes–Oxley Act of 2002. The scandal also affected the greater business world by causing the dissolution of the Arthur Andersen accounting company.[2] Enron filed for bankruptcy protection in the Southern District of New York during late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. It ended its bankruptcy during November 2004, pursuant to a court-approved plan of reorganization, after one of the most complex bankruptcy cases in U.S. history. A new board of directors changed the name of Enron to Enron Creditors Recovery Corp., and emphasized...
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...Case: The Fall of Enron 1. Why was Enron such an admired company prior to 2000? What innovation do they bring to the table? Be specific and support your statement with concrete information. Enron was an admired company prior to 2000 because at that time it surfaced as a frontrunner in the deregulated energy market, making it possible to sell energy at higher prices, thus significantly increasing its revenue. The company, through efficient management team, has built leading businesses in energy trading and international energy asset construction. The company has managed to maintain high return from its investments through ideal placement of resources by creating long term and fixed price contracts with clients that guaranteed stable gas prices for the duration of the contract, and managing the risk to commitment ratio. The company has further encouraged employees to move around the organization freely to positions where they feel they can add value and generate additional revenue. The company sought to rapidly obtain physical capacity in order to guarantee delivery to customers. This approach enabled Enron to provide customers with contracts that would allow for them to manage their business risks. Enron successfully used the energy-trading model to develop electric power. It acquired electric power generation, transmission, and distribution, and distribution expertise by buying Portland General Electric. In an attempt to achieve further growth, Enron pursued a diversification...
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...Global Perspectives on Accounting Education Volume 3, 2006, 27-48 ENRON AND ARTHUR ANDERSEN: THE CASE OF THE CROOKED E AND THE FALLEN A Gary M. Cunningham Visiting Professor Department of Business Administration Åbo Akademi University Turku, Finland Jean E. Harris Accounting Department Pennsylvania State University, Harrisburg Campus School of Business Administration Middletown, Pennsylvania USA ABSTRACT Outside the US, the failures of Enron and Arthur Andersen remain puzzles. How could the accounting and audit failures associated with Enron and Arthur Andersen happen in the US where auditing is sophisticated, accounting principles are strong, and disclosure is emphasized? This is a teaching case for persons outside the US to review the financial reporting and auditing issues related to Enron and to explain the regulation of accounting and auditing in the US. It has broad implications for corporate governance and accounting regulation in other countries as well. n the years after the Enron Corporation declared bankruptcy in 2001 and Arthur Andersen failed in 2002, people are still asking, especially those outside the US, how could this happen? What went wrong? The US has a well-developed set of Generally Accepted Accounting Principles (GAAP) that requires extensive disclosures in audited financial statements, and a well-established federal agency, the Securities and Exchange Commission (SEC) that monitors financial reporting. This case is written for accounting students and...
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...Kovaleva Mary Assignment 3. Enron scandal Rise of the company Enron was an American energy company based in Houston, Texas. It was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. In 1985, Kenneth Lay merged the natural gas pipeline companies of Houston Natural Gas and InterNorth to form Enron. In the early 1990s, he helped to initiate the selling of electricity at market prices and, soon after, the United States Congress passed legislation deregulating the sale of natural gas. The resulting markets made it possible for traders such as Enron to sell energy at higher prices, thereby significantly increasing its revenue. After producers and local governments decried the resultant price volatility and pushed for increased regulation, strong lobbying on the part of Enron and others was able to keep the free market system in place. In just 15 years, Enron grew from nowhere to be America's seventh largest company, employing 21,000 staff in more than 40 countries. In an attempt to achieve further growth, Enron pursued a diversification strategy. The company owned and operated a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants, and broadband services across the globe. The corporation also gained additional revenue by trading contracts for the same array of products and services it was involved in. As a result, Enron's stock rose from the start of the 1990s until year-end 1998 by 311% percent. By...
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...Global Perspectives on Accounting Education Volume 3, 2006, 27-48 ENRON AND ARTHUR ANDERSEN: THE CASE OF THE CROOKED E AND THE FALLEN A Gary M. Cunningham Visiting Professor Department of Business Administration Åbo Akademi University Turku, Finland Jean E. Harris Accounting Department Pennsylvania State University, Harrisburg Campus School of Business Administration Middletown, Pennsylvania USA ABSTRACT Outside the US, the failures of Enron and Arthur Andersen remain puzzles. How could the accounting and audit failures associated with Enron and Arthur Andersen happen in the US where auditing is sophisticated, accounting principles are strong, and disclosure is emphasized? This is a teaching case for persons outside the US to review the financial reporting and auditing issues related to Enron and to explain the regulation of accounting and auditing in the US. It has broad implications for corporate governance and accounting regulation in other countries as well. n the years after the Enron Corporation declared bankruptcy in 2001 and Arthur Andersen failed in 2002, people are still asking, especially those outside the US, how could this happen? What went wrong? The US has a well-developed set of Generally Accepted Accounting Principles (GAAP) that requires extensive disclosures in audited financial statements, and a well-established federal agency, the Securities and Exchange Commission (SEC) that monitors financial reporting. This case is written for accounting students and...
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...Obringer 1. [pic] 2. Page 3. 6 4. 7 5. 8 6. 9 7. [pic] Case Study: Enron Ads by Google Science Discovers God? Do New Scientific Discoveries Point to a Creator of the Universe? y-jesus.com Download Videos for Free See & Download Your Favorite Videos With Video Scavenger. It's Free! www.videoscavenger.com Business Card Templates Create Free Business Cards. Choose From Many Design Templates- Free! www.myscrapnook.com Background Once the seventh largest company in America, Enron was formed in 1985 when InterNorth acquired Houston Natural Gas. The company branched into many non-energy-related fields over the next several years, including such areas as Internet bandwidth, risk management, and weather derivatives (a type of weather insurance for seasonal businesses). Although their core business remained in the transmission and distribution of power, their phenomenal growth was occurring through their other interests. Fortune Magazine selected Enron as "America's most innovative company" for six straight years from 1996 to 2001. Then came the investigations into their complex network of off-shore partnerships and accounting practices. How the Fraud Happened The Enron fraud case is extremely complex. Some say Enron's demise is rooted in the fact that in 1992, Jeff Skilling, then president of Enron's trading operations, convinced federal regulators to permit Enron to use an accounting method known as "mark to market." This was a technique that was previously only...
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...what Enron did in the 1990s when it lobbied its accounts and the government to permit it to mark to market its contracts for the future supply of energy and Internet services to market.- C. William Thomas, The Rise and Fall of Enron: When a Company Looks Too Good to be True, it Usually is, J. ACCT., Apr. 2002, available at http://www.journalofaccountancy.com/Issues/2002/Apr/ TheRiseAndFallOfEnron.htm That change in accounting convention let Enron treat its anticipated gains as though they had already Mark-to-market Accounting In 1990, Jeffery Skilling joined Enron Corporation and in 1997, he was appointed as the company's Chief Executive Officer. Skilling demanded to change Enron's accounting system from a straightforward kind of accounting were Enron had listed actual revenue and costs of supplying and selling gas to the mark-to-market accounting system. The mark-to-market method requires estimations of future incomes when a long-term contract is signed. These estimations were based on the future net value of the cash flow, costs related to the contract were often hard to predict. This means that the estimated income from projects were included in Enron's accounting even though the money was not yet received and if there were any changes such as additional income or loss it would show up in subsequent periods. Investors were given misleading information because of the deviation in the estimations. Enron was the first non-financial company to use the mark-to-market method. The...
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...1. Explain the meaning of “creative accounting” and “earnings management”. Earnings management defines as the choice by a manager of accounting policies or real actions that affecting earnings, in order to achieve some specific reported earnings objective. Earnings management includes both accounting policy choice and real actions. There are two categories of accounting policies which are the choice of accounting policies per se and the discretionary accruals. One is the choice of accounting policies per se such as straight line versus declining balance amortization or policies for revenue recognition. Meanwhile, the other category is discretionary accruals such as provisions for credit losses, warranty costs, inventory values and timing and amounts of non-recurring and extraordinary items such as write offs and provisions for reorganization. There is an “iron law” surrounding accruals based earnings management which will be familiar from introductory accounting. Creative accounting refers to the use of accounting knowledge to influence the reported figures, while remaining within the jurisdiction of accounting rules and law, so that instead of showing the actual performance or position of the company, they reflect what the management wants to tell the stakeholders. 2. i) Describe the “good” and the “bad” sides of earnings management. Good sides of earnings management relates to efficient contracting. When a contract imposes strict or incomplete terms on a...
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...Mark-to-Market: The Fall of Enron John Smith State University Mark-to-Market: The Fall of Enron Enron was the face of business in the 1990’s. Rising to meteoric heights never seen before in the business world, to having just as epic of a fall. The core reason behind this meteoric rise and epic fall? Mark-to-Market (M2M) accounting principles. This paper will be presented in four sections. The first section defines and explains the term of M2M. The second section discusses the way M2M was used in the business environment before and after the Enron collapse. The third section focuses on the views of the current business environment on using M2M, both for and against its use. In the fourth and final section, the author gives their opinion on the practice of M2M, and if it is still a viable accounting principle. Mark-to-Market Defined In the private sector all accounting principles and standards are gathered together and organized by the Financial Accounting Standards Board (FASB). They are then put into what is called the FASB Codification. The FASB Codification (2015) defines M2M as a valuation method that uses current market prices and other useful information that is supplied by market exchanges between similar items such as assets, liabilities or a similar business (“FASB Codification,” 2015). Basically what this accounting principle does is use the fair value of the current market price to determine what an asset or liability is worth. Using traditional...
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...Effects of Unethical and Irrational Decision Making at Enron DePaul University Managers and employees are often faced with ethical problems. The decisions that are made in regards to handling those problems can define an individual's career and determine the ultimate fate of their organization. In this discussion, examples of decisions that were made by Enron employees will be discussed that will exemplify this point. The first decision that will be discussed is the decision that Jeff Skilling, President and Chief Operating Officer of Enron, made when he decided to ask Enron's accounting firm, Arthur Anderson, to use the mark to market accounting method. It was a very intelligent and rational decision at the time that it was approved by Arthur Anderson and the Securities & Exchange Commission. However, it eventually opened the doors for greed and fraud and led to intentional misrepresentation. If Jeff Skilling's initial intentions were to misrepresent financial statements, then the decision would have been very unethical and irrational. The mark to market accounting method allowed the company to book revenue based on the present value of net future cash flows. Simpler put, the accounting method gave Jeff Skilling the opportunity to claim any amount of revenues that he wanted. Consequently, this gave Enron the power to control their own stock price which led to an escalation of commitment which is, "staying with a decision even when there is clear...
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...MBA 6070X – Ethics & Law Essay 2 February 2015 Enron - Ethics & Law Essay Introduction: Enron Corporation was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000 employees and was one of the largest electricity, natural gas, paper, and communication companies, with overall revenues of nearly $101 billion in 2000. The company developed, built and operated power plants and pipelines while dealing with rules of law and various infrastructures worldwide. In just 15 years, Enron grew into one of America’s largest companies and leading magazine “Fortune†named Enron “America’s Most Innovative Company†for six consecutive years. Enron divided its business into three main areas: (I) Enron Wholesale, (II) Enron Energy Service, and (III) Enron’s Global Asset. Enron wasn’t focusing to specific industry strategies. Rather, it has an overall strategy that calls for creating an environment and culture of creativity and idea generation. “Enron is a laboratory of innovation. Enron’s entrepreneurial approach calls for new insights, new ways of looking at problems and opportunities. Enron has an exceptional ability to leverage its intellectual capital. Individuals are empowered to do what they think is best. Enron’s philosophy is not to stand in the way of our employees. This environment spurs the innovation that enables Enron to revolutionize traditional energy markets and successfully enter...
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