Case Presentation - Enron Scandal - Jensen 1 Lauren Jensen Accounting 2600 006 10 October 2014 The Enron Scandal Fortune Magazine named Enron Americas

Case Presentation - Enron Scandal - Jensen 1 Lauren Jensen...

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Jensen Lauren Jensen Accounting 2600 – 006 10 October 2014 The Enron Scandal Fortune Magazine named Enron, “America’s Most Innovative Company” for a consecutive six years. After this Houston-based energy and service corporation reached dramatic heights, it abruptly collapsed and was forced to declare bankruptcy because it housed one of the biggest accounting frauds in history. To help illustrate their dramatic collapse I found a quote from the documentary, Enron: The Smartest Guys in the Room , “It had taken Enron 16 years to go from about 10 billion of assets to 85 billion of assets. It took them only 24 days to go bankrupt.” (Netflix 2007) Prior to this misfortune, Enron was based on revenue; the seventh largest company in the U.S. through some fairly intricate accounting practices Enron was able to keep hundreds of millions of debt off their records. Doing so mislead investors and analysts into thinking this company was more fundamentally secure, than it actually was. As Enron fell, it took down with it Arthur Andersen, the fifth leading accounting firm in the world at the time. Andresen, Enron’s auditor, basically collapsed after David Duncan, Enron’s chief auditor ordered the shredding of thousands of documents, resulting in over a ton of paper. David Duncan was one of the major players in this scandal along three others: Kenneth Lay the founder and CEO, Jeffrey Skilling who took over as CEO after Lay resigned the first time, and Andrew Fausted the CFO. Kenneth Lay, or as his friends like to call him Kenny Boy, was the founder of Enron in 1985. He had a PhD in economics and believed in deregulation, which is the process of removing or reducing state regulations (Deregulation 2014). His view on deregulation was from the standpoint from all the money he thought he could make from it. He had been poor throughout his childhood and often found himself dreaming about business and having a better life. The oil trading business had profits that no one could really comprehend, and many people questioned. Kenny Lay enveloped himself in moral rectitude but there was no way that this business could be legally making this much money. The start of this whole debacle was a scandal known as the Vahalla scandal. There was a misappropriation of moneys by two oil traders, off shore accounts, and phony books. These traders presented falsify bank records to Enron, then they admitted to diverting company profits to personal accounts. At the board meeting Lay was clearly aware what was going on but he said to change nothing and to keep making them millions. Because of this encouragement the traders eventually gambled away all of Enron’s reserves. However, they were able to bluff the market and save the company. Lay claimed he was shocked, but he knew all along the risks they were taking (Netflix 2007).
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  • Fall '14
  • Steven
  • Accounting, Enron scandal, accounting practices Enron

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