ENRON

QUESTIONABLE
ACCOUNTING LEADS TO
COLLAPSE

Submitted to:
Delonn Alim Wong

Submitted by:
Kay Chary Hechanova
Carmel Linga
Jacqueline Licera
Amanda Latoja
Nathalie Trabado
Introduction
The company was created out of the merger of two major gas
pipeline companies in 1985. The company provided products and services
related to natural gas, electricity and communications for its wholesale
and retail customers. It generated, transmitted, and distributed
electricity to the north-western United States, and marketed natural gas,
electricity and other commodities globally. Andrew Fastow transformed
Enron from an old-style electricity and gas company into $150 billion
energy company and Wall Street favorite. Enron’s revenue grew from
$31 billion to more $100 Billion, making it the SEVENTH-LARGEST
company of Fortune 500.

Body
The management allowed the off-balance-sheet partnership to be
created. Lay believed that the transaction was legal because attorneys and
accountants approved them. Executives sold their own stock knowing
that the company is near to bankruptcy (INSIDER TRADING). Skilling
created a system in which Enron’s employees were ranked every six
months, with those ranked in the bottom 20 percent forced out (RANK
AND YANK SYSTEM). The company used special-purpose entities
(SPEs), to conceal losses. The SPEs moved assets and debt off its balance
sheet and to increase cash flow. Andrew Fastow managed to inflate
Enron’s profit to look good in future investors.
Conclusion

1.How did the corporate culture of Enron’s contribute to its bankruptcy?

a. The corporate culture of Enron itself is very aggressive profit wise.
Enron's culture focuses on how much money could be made for the
executives.
b. Enron ensures the stability and profit making of operations for the
sake of their executives rather than the shareholders.
c. Enron was very strict with their employees. They established the
rank and yank system. Enron's corporate culture encourage
flouting, possible even breaking the rules.
2. Did Enron’s bankers, auditors, and attorneys can contribute to Enron’s
demise? If so, what was their contributions.
 Banker:
◦ Merrill lynch is engaged in money laundering since it sold barges
but the sale was improperly recorded to Enron.
◦ It was also engaged in conspiracy since it aided in fraudulent
manipulation of Enron income statement.
 Auditors:
◦ Arthur Andersen LLP
 Was engaged in conspiracy due to the fact that it Anderson's
audit was biased since Enron gave large consulting fees to
Andersen.
◦ Attorney:
 did not investigate the allegations of accounting fraud by
Watkins and helped established the SPEs
3. What role did the chief financial officer play in creating the problems that led
to Enron’s financial problem?
 Fastow used SPEs to hide Enron's Debt and He directly ran these
partnerships to purchase the underperforming assets
 Enron’s CFO manipulated balance sheets to hide losses, inflate revenues.
 He also banned the employees’ stocks to be sold and it triggers the
collapsed of the company.
 He also uses SPEs to get bribes and to enrich his self