Auditing
1/26/15
Enron Enron began as Northern Natural Gas in 1932. In 1979 the company reorganized and became InterNorth. InterNorth was in the business of creating energy products such as natural gas and plastics. Later InterNorth merged into what was known as Enron with the new CEO Kenneth Lay running the show. He then began moving the headquarters to Houston, where they began selling off assets to limit their losses initially. The misleading financial accounts began when Jeffrey Skilling wanting to hide their losses. He and Andrew Fastow used special purpose entities to off load liabilities to those company to keep their main business looking as if they were profiting. Which intern made them look as though their business is successful and made their stocks increase because investors saw that the business was profiting not failing. A way that they were able to show the company as profitable was transferring debits and losses to offshore businesses that made it look as though on the books they were profiting and to make those unprofitable parts of the company disappear into an offshore business. To hide their losses in the trading business Skilling used mark-to-market accounting. Mark-to-market accounting is used in the security business but what Skilling did was use it for everyday business. Doing this let them write out what they thought a certain venture would be making in the future, without having to have actually made a dime. This let Enron show on the books that the company was actually turning a profit, which made the company look as though it was good to invest in. For example an article written by Chris Seabury stated that what Enron did was build a power plant and then immediately claim the project profit on its books. If the profit of the plant was less than the projected profit the company would transfer the assets to an off the books