Shaira R.

Vergara Strategic Business Analysis

Precious Ann Bundalian September 10, 2019

I. The Enron Corporate Scandal

II. Introduction

Enron was one of the world’s leading electricity, natural gas, pulp, paper and

communication companies based in Houston, Texas. It has around 21,000 people with

claimed revenues of $101bn in 2000. It was revealed that its reported financial condition was

sustained mostly by systematic and creative accounting fraud in 2001. The scandal also

caused the dissolution of Arthur Andersen, a Big 5 Accounting Firm. Enron’s recorded assets

and profits were inflated, fraudulent and non-existent, also put debts and losses into

‘offshore’ companies not included in the financial statements and used SPEs to take

unprofitable transactions of the company’s books. Later on, investigations revealed that some

executives at Enron knew about the offshore accounts that were hiding losses for the

company. At 1998, employees had been expressing concerns that led into an all-employee

meeting in mid-2001. Late in October 2002, the Securities and Exchange Commission

opened a formal inquiry into Enron, which shoes devastating trail of events at Arthur

Andersen, and at mid-November, a large number of Enron related audit documents had been

destroyed. The trial of Arthur Andersen also exposed its accounting fraud at WorldCom,

showing other accounting scandals at 2002. There are a lot of bank who are also named as

players in the series of fraudulent transactions. And there are 2 law firms who identified as

involved in the fraud. By mid-2006, 16 of Enron’s top executives are pleaded guilty and

convicted in the process of being sentenced.

 III. Statement of the Problem

How did the company maintain their profitability while they have its hidden losses and debt?

IV. Point of view

The Owner’s point of view is being considerate. He considered the company’s economic value.

On the other hand, the owner also showed his bad side, which is being irresponsible. He hid the

company’s debt and losses, and focuses on the money making of Enron.

V. Alternative Courses of Action

- Make a monthly background check on the firm.

- Create a weekly report.

- Prepare an Income Statement, Statement of Changes in Equity, Statement of Cash Flow

and present also a Statement of Financial Position as well.

VI. Recommendation

Business owners need to improve their company to earn more profit. They should also

present the financial statements fairly. Stockholders and employee should be accountable to

their actions on doing their jobs so the company will be stable in making profit. Having a

reliable source in their firm can create a openness to the owners so they can communicate to

each other’s if there is a little problem in the firm. The owners need to check every detail of

the firm to avoid making conflict that they cause of losing the profit or sink in debt. And

most important is, honesty, which will lead them into a better company.
VII. Conclusion

Based on the company’s profile, I therefore conclude that Financial Reports are very

essential into a business daily routine. Financial reports indicate the profitability and the state

of being ineffective of a certain company.