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Enron

Enron filed for bankruptcy in 2001 after a decade of misleading accounting practices that hid billions in losses and debt. Questionable accounting methods and off-balance sheet partnerships allowed Enron to artificially inflate profits. Both internal and external auditors failed to identify the losses hidden through creative accounting. Enron's collapse exposed widespread accounting failures and damaged investor trust in financial reporting.

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41 views2 pages

Enron

Enron filed for bankruptcy in 2001 after a decade of misleading accounting practices that hid billions in losses and debt. Questionable accounting methods and off-balance sheet partnerships allowed Enron to artificially inflate profits. Both internal and external auditors failed to identify the losses hidden through creative accounting. Enron's collapse exposed widespread accounting failures and damaged investor trust in financial reporting.

Uploaded by

Lebron Bryant
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Enron’s Timeline

Enron is formed following a merger between Houston


1985
Natural Gas Co. and InterNorth Inc.

Enron is named "America's Most Innovative


1995 Company" by Fortune. The firm goes on to win this
award for six consecutive years.

Andrew Fastow is promoted to CFO, he ultimately


1998 spearheads the creation of a network of companies
that hide Enron's losses.

Enron's shares skyrocket to an all-time high of


2000
$90.56.

Jeffrey Skilling replaces Kenneth Lay as CEO.


Feb. 12, 2001 However, Lay remains a member of the board of
directors.

Skilling resigns suddenly, and Lay takes over once


again. Enron's broadband division also reports a
massive $137 million loss. Analysts became weary of
Aug. 14, 2001
the company and subsequently drop their ratings for
Enron's stock. In turn, the company's share price
dives to $39.95, a 52-week low.

Arthur Andersen legal counsel tells auditors to


Oct. 12, 2001 destroy all Enron files, except Enron's most basic
documents.

Enron reports a $618 million loss and $1.2 billion


Oct. 16, 2001
value write off. Enron's stock drops further to $38.84.

Enron announces it's facing a SEC probe. Shares fall


Oct. 22, 2001 to around $20.75 that day, following the
announcement.

Enron admits it has been inflating its income by


Nov. 8, 2001
around $586 million since 1997.

Arthur Andersen becomes another casualty of the


Nov. 29, 2001
Enron scandal as the SEC expands its investigation.

Enron files for Chapter 11 bankruptcy. Its stock


Dec. 2, 2001
closes at $0.26

The Justice Department launches a criminal


Jan. 9, 2002
investigation.
Jan. 15, 2002 Enron is suspended from the NYSE.

Enron's accounting firm, Arthur Andersen is


June 15, 2002
convicted of obstructing justice.

Analysis

1. Role of Accounting Professionals in the Downfall of Enron:

• Policy of not combining SPEs to cover the losses and outstanding debts from the
investors.

• The accounting methods of sales of the merchant investments were kept


unconsolidated with SPEs.

• Enron’s minimum disclosure of their party transactions and their costs to the
stakeholders

2. Failure of Internal and External Balance Checks:

• Both internal and external checks failed to identify the losses which were hidden by the
company’s creative accounting methods for a number of years.

• Overstated the prices and the stocks under the future contracts by arguing that the
future worth of the assets will be even more than what was then actually estimated.

• Enron’s board of directors, lawyers, executives, compliance officers and the external
auditing agencies Arthur Andersen either ignored or intentionally concealed the
deceitful accounting practices by the company.

3. Breach of Accounting and Ethical Code of Conduct.

4. Corporate Culture and Disregard for Code of Ethics by Top Managers.

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