EMRON: information reliability and impact on the market

Question:-1 what was the problem of Enron? Answer the question on the
perspective of conceptual frame-work of accounting.
Answer: In case of effective financial reporting every company should concern

information that is useful for the potential and existing investors and creditors.
Reliability and relevance are two major qualitative characteristics of financial
statement that make them more useful to potential creditors and investors. Enrons
financial statements were full of fake information. They have overstated growth of
annual earning by 15-20%. They have shown success in their business units and
hided large losses , white downs and other negative information about business
unit number of information Enron has given does not match the reality Andrew
Fastow, Enrons now-imprisoned former finance chief, testified that many of the
banks transactions were contrived, deceptive deals done solely to create the false
appearance of profits and cash flow. and thus they lack of representative
faithfulness. Because of this misrepresentation of data audit firms employed by SEC
(Security Exchange Commission) came up with different result, Enron lack of
variability. Enrons financial statements also was full of biasness. To rise stock prices
Enron reported false growth in retained earnings. They also concealed large amount
of losses with the organization. They also deceived credit rating agencies in order to
maintain investment grade credit ratings. All this effort proves biasness in financial
reporting. Enrons financial statements were not reliable.

Question :-2 Who are the sufferer?

Answer: The Enron Scandal caused massive losses of stock exchange. It wiped out
the pension of thousands of employees. Citizens trust in the American economic
system was destroyed. Shareholders lost $75 billion Thousands of employees and
investors lost their investment on 401 (k) retirement accounts. Many employees lost
their job. The list of sufferers is more longer. The top management of enron
especially Arthur Anderson CPA, security analysts recommending Enrons stock ,
board rating agencies and politicians who donated at Enron faced a great trouble.
Anderson was imprisoned for 69 years. Former CFO Kenneth Lay came under a
scrap criticism.
On December 2, 2001 Enron Corporation with its other
subsidiaries (all of the debtors of Enron) were field voluntary petitions under chapter
11 title 11 of United State Code (the Bankruptcy Code) by United State
bankruptcy court. And Enron was eventually bankrupted.