Enron_Scandal

Enron_Scandal - Enron Scandal MSN Encarta Encyclopedia...

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Enron Scandal MSN Encarta Encyclopedia Article Multimedia I Introduction Enron Scandal , business scandal that came to symbolize the excesses of corporations during the long economic boom of the 1990s in the United States. Billed by Fortune magazine as “America’s Most Innovative Company” for six straight years from 1996 to 2001, the Enron Corporation became one of the largest bankruptcies in U.S. history in December 2001. The company’s spectacular collapse resulted from the disclosure that it had reported false profits, using accounting methods that failed to follow generally accepted procedures. Both internal and external controls failed to detect the financial losses disguised as profits for a number of years. Enron’s managers, whose activities brought the company to the brink of ruin, escaped with millions of dollars as they retired or sold their company stock before its price plummeted. Enron employees were not so lucky. Many lost their jobs and a hefty portion of retirement savings invested in Enron stock. The Enron scandal played a major role in shaking investor confidence in American business because the firm was able to hide its losses for nearly five years. Outside agencies, such as accounting firms, credit-rating businesses, and stock market analysts failed to warn the public about Enron’s business losses until they were obvious to all. Internal controls did not work, either. Enron’s board of directors, and especially its audit committee, apparently did not understand the complicated financial activities undertaken and consequently did not provide adequate oversight. The scandal resulted in new legislation that reformed accounting practices and strengthened the ability of the Securities and Exchange Commission (SEC) to investigate accounting fraud. The Public Company Accounting Reform and Investor Protection Act of 2002 provided for the
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strictest government oversight of business financial reporting since the New Deal legislation of the 1930s. In addition to the failure of outside auditors and internal corporate oversight, many experts believed that the federal government also bore some responsibility for the situation. Politicians in both the legislative and executive branches received millions of dollars in campaign donations from Enron during the period when the federal government decided to deregulate the energy industry, removing virtually all government controls. Deregulation was the critical act that made Enron’s rise as a $100-billion company possible. II Enron’s Origins Enron began business in 1986 as a result of the merger of two natural gas companies intent on creating the first nationwide natural gas pipeline. At that time, energy production was a government-sanctioned monopoly. The government regulated the construction of power plants, the rates to be charged for power, and the maximum profits energy companies could earn. That all changed after the federal government deregulated the natural gas industry in the late 1980s
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Enron_Scandal - Enron Scandal MSN Encarta Encyclopedia...

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