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Historically, Enron was the preeminent energy company until such it was revealed that its

reported financial condition was sustained substantially by institutionalized, systematic and


creatively-planned accounting fraud. The scandal at large, involves the corporation itself and its
accounting firm Arthur Andersen Group, was revealed in late 2001. Given the complexity of
Enron's balance sheet, it is difficult to determine the exact amount of preferred stock Enron has
outstanding. By October 16, 2001, the company reported its first quarterly loss, significant
enough to caught the attention of SEC. That is the inevitable consequence of a stock that lost
99.5 percent of its market value in a year. Before Enron filed for Bankruptcy Chapter 11, it
follows Dynegy, a smaller energy company, backed out on a merger deal on November 28,
2001.
The market value of Enron's preferred stock has plummeted along with its ability to meet the
dividends payable on the securities. Enron also owes money to many lenders.
Thousands of Enron employees who had big chunks of their retirement savings in company
stock have seen the money evaporate. One Enron board member has lost billions. Holders of
Enron preferred stock are also looking at steep losses.
Since then, America’s seventh-largest firm collapsed in an unprecedented accounting scandal
and became a byword for massive corporate fraud.

Since Enron took highly complex accounting rules and created structures that were so
complicated, the internal financial control all by itself had ultimately digged its own grave with
off-balance-sheet records and designed accounting practices not in accordance with GAAP and
other applicable standards. Provided are the corrective alternative courses of action to at least
ease the devastating fall of the wall street darling:
From Manager’s Perspective:
In a persuasive manner, business investors and employees of Enron must confidentially initiate
and support a discussion about the internal concerns. Forming a purpose, these concerns must
be reported anonymously, conspiring to bring simple, feasible change in the financial system
and its operations. However, there is safety in numbers, or else. So as the CEO, Kenneth Lay,
was able to dismiss Sherron Watkin's concerns as just it is one person’s opinion. She think that,
if she had got more people to go with her, the outcome might have been different.
The ethical companies do win in the end. There may be hiccups where the abusers of the
system appear to be winning, but in the end they usually don’t.
The company auditor, or any parties responsible for the financial reporting process, may by
status quo option, choose to disclose the fraudulent financial reporting and misappropriation of
assets. This last resort would set the company to the same direction but the precipitation of
collapse would alleviate the counts for violations and offenses.
From Institutional Perspective:
If whether new provisions that are required to be promulgated or to impose new rigorous
standards, it must be the mandatory rotation of audit firms generally where auditors must follow
a conventional or new multi-disciplinary practices with publicly-listed and private entities or audit
clients and work to win the interest of public, they need to consider what else they can or cannot
do for the companies they audit in order to restore proper independence of the CPA profession,
such there has been a provision or law, fraudulent finance or audit operations have been
thoroughly prevented without further ado.

I must say Enron was profoundly creative and idealistic on building up its insurmountable tower
of questionable financial integrity but there are sayings that the obstruction of success cannot
be neglected. Obviously, majority of its executives subsists to operate even though intentions to
defraud the public were already existing and of becoming as sentiments of the financial system
and its operations. Many of the directors were continuing to advocate to rise stock price, and
selling the stock at the same time.
From the insights of Sherron Watkins, a former executive of Enron, that we have to look after
the company's best interest at heart of which is the ethical long term value rather than to inflate
short term results that creates a threat of self-interest, a corrupted belief that construes false
legacy for wealth.
Glad to know, companies, integrated with technology, will not be able to hide their poor
practices and behaviour so easily. Convergence, with some new tools of security and
information, will act as another deterrent on behalf of the regulating compliance agencies. Also,
The contemporary Sarbanes-Oxley act has companies paying a lot more attention to accounting
problems that greatly increased regulation and oversight which is enacted to help prevent
corporate scandals of Enron's magnitude.

Coming from story of its creation, the root causes of failure is similar to the circumstance where
complexity is adopted as operating mechanism instead of being simple but wittingly practical to
heed what is morally upright.
Towards the accounting method;
Enron's non-transparent financial statements, evidently, did not delineate its real operations and
finances with its shareholders. The mark-to-market method of accounting making it hard to pin
down the realistic appraisal of financial situation as it started logging estimated profits as actual
ones. It can be easily manipulated where Enron continued to recognize future profits even
though the deal with Blockbuster, auspiciously entered on a VOD market, resulted in a loss.
Also, Enron used hundreds of Special Purpose Entities (SPEs) to hide its debt that understated
its liabilities, overstated its equity and profits.
Organizational governance;
Even with its complex corporate governance, Enron was still able to conceal its true
performance. Enron's auditing firm, Arthur Andersen, were pressured by Enron to defer
recognizing the charges from the SPE as its credit risks. To maximize bonuses on the executive
compensation, the setup of the system focuses on short-term earnings.
And the US monitoring system.
Back then, AICPA and State Certified General Accountants Association were traditional civil
society organizations, not specifically authorized by law.
As most CEOs in the US are also board chairman, it will come to the point that it just don’t have
adequate independent supervision. Kenneth Lay as in the case thereof is a board chair and
CEO at that time during the fall of Enron.