Enrons Accounting Fraud - 1304 Words

Financial Accounting Assignment : ENRON’s Accounting Fraud MBA (2011-2013) 1/3/2012 Submitted To: M Jameel Submitted By: Maliha Aziz Butt ENRON’s ACCOUNTING SCANDAL INTRODUCTION: Northern Natural Gas Company (the ancestor of ENRON) was established in 1930. In 1979, Inter North Inc. bought Northern Natural Gas Company and placed it under a new management. In the 1980s, the United States Congress passed legislation deregulating the sale of natural gas. At the beginning of the 1990s, Congress passed a similar legislation targeted at the sales of electricity. These steps launched a new era in the energy market, allowing companies like ENRON to prosper. In 1985, Kenneth Lay, CEO of Houston Natural Gas devised a new company†¦show more content†¦For instance, unrealized gains accounted for a little more than of ENRON’s $1.1 billion reported income before taxes for 2000. The use of this accounting measure, as well as the use of other questionable measures, made it difficult for the public to see the business model of ENRON. In fact, the numbers were recorded on the books but the company was not paying equivalent taxes. Creating off Balance Sheet Entities to Cover-up losses: Moreover, we know that ENRON has been buying a big number of ventures that looked promising. We know that ENRON has also been creating off balance sheet entities in order to remove the risk of their financial statements. Because of market-based accounting explained above, ENRON recorded all time high revenues. The company thus wanted to be involved in other areas. For instance, ENRON was buying or developing an asset – such as a pipeline – and then was expanding through a vertical integration (buying a retail business around that pipeline). This strategy required huge amounts of initial investments and was not going to generate earning or cash flow in the short term. If ENRON elected to present this strategy on its financial statements, it would have placed a big burden on the company’s ratios and credit ratings, and credit ratings investment grade was crucial for ENRON energy trading business. In order to find a solution to this issue, ENRON decided to look for outside investors who would like to make those deals withShow MoreRelatedEnron Accounting Scandal1706 Words   |  7 PagesThe Enron Accounting Scandal of 2001 There are many accounting scandals that have occurred throughout United States History. Many scandals occur even without outsiders knowing anything that had occurred. Companies try their best to keep many of the accounting scandals quiet. Everyday, there are political and business fraud happening, and most of it goes unnoticed. No company wants to admit that there was a problem or that people within the company are not trust worthy. However, when executivesRead MoreCorporate Fraud Has Taken The World By Storm For Over The Past Decade1479 Words   |  6 PagesCorporate Fraud Introduction Overview Corporate fraud has taken the world by storm for over the past decade. The biggest fraud cases to ever occur happened in 2001 and 2002 and since then fraud seems to be more and more common around the world. According to Forbes.com (n.d) the biggest fraud cases to ever occur was Enron, Bernard Madoff, Lehman Brothers, and Cendant, with Enron being the largest accounting scandal to ever take place. Prior to Enron’s fraud scandal coming to light in 2001, theyRead MoreEnron Corporation : The Largest Energy Trading Essay1131 Words   |  5 Pagesinnovative company for six consecutive years. However, due to fraud scandals that involving its accounting firm which is Arthur Andersen and Enron’s managements, Enron has been announces bankrupt in 2001. Enron Corporation can be considered as one of the largest fraud scandals in history of U.S. The fraud has been conducted by Enron’s top managements and its accounting firm Arthur Andersen. Firstly, Enron has used complex and dubious accounting schemes by manipulate company’s transactions, thus it hasRead MoreThe Ethical Dimension Of The Demise Of Enron Corporation1474 Words   |  6 PagesThis paper explores the ethical dimension of the demise of Enron Corporation an reflection of author, placed in hypothetical situations. Accounting Fraud and Management philosophy will be the main discussion topics, along with the motivations of fraud. The fall of Enron can be directly attributed to a violation of ethical standards in business. This makes Enron unique in corporate history for the same actions that made Enron on of the fastest growing and most profitable corporations, at the turnRead MoreEnron Scandal Of Enron Corporation Essay1145 Words   |  5 PagesIntroduction Enron scandal which aroused in 2001 was one of the most famous events in the area of fraud audit. As the auditor company of Enron, Arthur Andersen failed to prepare true and fair auditing reports. They both suffered lethal loss at that time. The following paragraphs will discuss this fraud event, including the organization history, the organization’s event, the fraud issue in the event, the consequence of the main stakeholders, auditors in the event and their roles, and the current situationRead MoreEnron And The Enron Company1502 Words   |  7 Pageswas bought back and backdated on August 3rd when SPEs stock price hit $160 a share and booked a $75 million gain, which delivered accounting benefits to Enron from complex and deceptive swap transaction, while SPEs specialist and accomplices, according to Swartz and Watkins (2003: 310), earned $58.9 (p.1221). Giroux (2008) research found that the Enron executives make certain that its quarterly earnings forecast are met due to their compensation package includes stock options, which stipulatesRead MoreEnron Was The Largest Trader Of Electricity, Energy And Natural Gas1139 Words   |  5 Pages Alessia Scolaro Accounting II Before its collapse, Enron was the largest trader of electricity, energy and natural gas in the world. Founded in 1985 by businessman Kenneth Lay, Enron quickly became one of the largest corporations in America. It was a company who claimed to valued itself on integrity and truthfulness and whose main goal was to try to change the way the world bought and sold energy. Unfortunately, greed and arrogance along with accounting fraud lead to its ultimate demise.Read MoreEnron Corporation: An Electivity and Natural Gas Company1621 Words   |  7 Pagescorporate bankruptcy in U.S. history. Now it is considered to be one of the largest fraud scandals in the history of the United States. After Enron collapsed, shareholders lost about 80 billion dollars and many people lost their jobs and lost their life savings that they had invested in Enron’s shares. Soon after Enron collapsed, Arthur Andersen, a well respected accounting firm that was also one of the big five accounting firms at the time, was found guilty of obstruction of justice after David DuncanRead MoreEnron s Financial Fraud And Corporate Fraud1700 Words   |  7 Pages Years ago, a series of financial frauds and collapses was occurs in United States. Includes Enron, Global Crossing, Worldcom, Healthsouth, AIG and Lehman Brothers scandals. In the American capital market, the investors abandoned a number of large listed companies leads to the bankruptcy for those companies. The corporate frauds not only deceive investors, but also make oneself paid a heavy price. At the same time, it not only harm the capital market, but also caused a significant impact on AmericanRead MoreEnron : Enron And Enron Sca ndal Essay1269 Words   |  6 Pagesmore than 20,000 staff and with claimed revenues nearly $101 billion during 2000. Enron was the rank 16 of Fortune 500 in 2000. In 2001 it revealed that Enron’s financial report was planned accounting fraud, known since as the Enron scandal. In the Enron scandal, Enron used fraudulent accounting practices to cover its fraud in reporting Enron’s financial information. Its purpose is to hide the significant liabilities from its financial statement. Enron tried to make its financial report with great