Enron Scandal - Accounting 2600 Case Presentation 1 The Enron Scandal Enron was formed by the merger between Houston Natural Gas and InterNorth Ken Lay

Enron Scandal - Accounting 2600 Case Presentation 1 The...

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Accounting 2600 Case Presentation 1 The Enron Scandal Enron was formed by the merger between Houston Natural Gas and InterNorth. Ken Lay, one of the big players in the story, was the CEO of Houston Natural Gas and he took over as the CEO and chairman of the board of the newly formed company Enron. Ken Lay grew up with very little means, this is important to know because it fueled his desire to accumulate wealth. With a Phd in economics Ken Lay was drawn to the natural gas industry because he saw the ability for large profits in its newly deregulated marketplace. Once in the industry, Ken Lay would continue to push for increased deregulation. Ken Lay wanted to expand Enron past its shell of just natural gas and wanted to start trading energy as well. And because the market was not regulated, Enron could bet on whether the price of energy was going to go up or down. Enron began employing traders to make these energy trades to collect extra profits for the company. Two of these traders were taking very high risks with Enron's money and even taking some profits for themselves from their trades. Although this was highly unethical, when Ken Lay discovered this situation he did not punish the traders because they were making him a huge amount of money. One day these traders' luck ran out and they lost a sum of 90 million dollars within 5 days. Enron came out of this just fine, but it was a very minor scandal compared to what was to come. Although Ken Lay played an important role in Enron's massive fraud, the man behind the majority of the madness went by the name of Jeff Skilling. Skilling's condition he had upon joining Enron was that he must be allowed to use a mark-to-market accounting method. This accounting method, was probably the most important element to the entire Enron scandal. With this method, Jeff Skilling made it possible for Enron to recognize revenue on their books on the very same day that the deal was made with the customer. This goes against the idea of recognizing revenue when earned and had disastrous final consequences. These are final consequences because in the interim when people were unaware as to what was going on, their stock looked absolutely fabulous to any investor. As they should when a company can essentially make their revenues what
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