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The Enron Fraud

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The Enron Fraud

Enron Corporation was a conventional energy company founded in 1985, but soon expanded its operations as an energy trader of derivatives contracts, taking advantage of the deregulation of the energy markets. It also built and operated a variety of assets across the globe, including pipelines, electricity plants, pulp and paper plants, water plants, and broadband services; and provided financial and risk management services to customers worldwide. Enron soon became a world-renowned company and it was labeled as the most innovative company in the U.S. for six consecutive years between 1996 and 2001 by Fortune magazine. It was ranked the sixth largest energy company in the world in 2000, with close to 22,000 employees and nearly $101 billion in revenues. But in 2001 the company’s reputation began to fall following rumors of bribery to obtain contracts in different parts of the world. Likewise, fraudulent accounting techniques, which were supported by its external auditing firm Arthur Andersen, allowed the company to create the largest corporate scam know in U.S. history until then (McLean, 2008). Enron’s fraud consisted of, what its CEO called, creative accounting: off-balance-sheet items, complex financing structures, and deals so bewildering that made financial statements misleading and difficult for the stakeholders to understand, deceiving the main objective of financial reporting which is “to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity” (Kieso, Weygantdt, & Warfield, 2013, p. 5). Enron set up thousands of limited liability special purpose entities where it would transfer and hide risky investment activities and financial losses while continuing to grow its stock price. These...

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