Unit 6/7 is scored as 70 percent for mistakes and 30 percent for the Enron report (below).

The
Enron report is expected to be a page, single spaced, marked as follows:

Thoughtful overall insight 5

Well written and followed through 5
Good flow, grammar and usage 5
Grasp of the issue’s severity 5
Biblical content (suitable to issue) 5
Use of accounting terms 5
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TOTAL 30

Enron’s Corporation’s fall from grace

Enron Corporation was founded in 1985 at Omaha, Nebraska. It was created after
InterNorth bought Houston Natural Gas in 1985. It became one of the world’s largest electricity
and Natural Gas Companies. But what was more well-known was the scandal that happened
between the early 90s until Oct. 1, 2001, when the scandal was revealed. The management used
accounting loopholes and special purpose entities to create temporary objects and falsely
represented the assets section of the balance sheet. By poor and deceptive financial reporting the
company hid from the public the huge amount of debts due to bad decisions on deals and
projects. Also, Enron hid the real financial status of the company from its investors by taking
details of its operations and finances off its financial statements. Being a public company, people
were misled as to the company’s real value.

Enron Corporation was focused on developing electric power plants, natural gas
pipelines, storage and natural gas processing. They also provided services such as wholesale
trading and risk management. Owing to their terrible decisions, it affected the revenue of the
company. But this was not the main cause of its failure. The main cause was the aggressive
model that they used to appear more profitable, which was later used by many other energy
companies. They recorded the entire value of its trades as revenue. By doing this, the public
would think that the company had a rapid growth, comparing Enron’s revenue in 1996 with that
in 2000, which revealed a growth of more than 750%. The problem with this was that they were
in fact losing money on projects. They hid the truth from investors by stating the entire value as
revenue. Enron also used the “mark to market accounting approach”, meaning that when a long
term contract is signed, income will be estimated right away to factor in net future cash flows.
This was a major problem to the company because it is difficult to judge how much you will earn
from a project for each period. Enron used this estimation to mislead the investors’ perceptions
of value.

At the same time, when the company’s shares were hitting record numbers in the stock
market, the management – who had accumulated significant stock options – began to sell their
shares because they knew about the situation in Enron and that Enron would not be able to
survive. While they were selling their shares, the CEO of Enron was encouraging the public to
buy shares of the company by telling them that Enron was financially healthy and the there was
no problem with the company’s balance sheet.

The scandal affected people who made decisions based on the falsified financial
statements because the financial statements are the only things that investors can use to assess
the financial merits about the company. They are unable to determine the truth of the financial
information and data when it is falsified or methods are improperly used to inflate performance
and worth. Also, with minimal details on the financial statements, like the ones being given by
Enron Corporation and limited partnerships, even the government agency such as the US
Securities and Exchange Commission would not know what the real financial status of a
company was.

In the Bible, God not only mentioned numerous times the importance of honesty, but
deals harshly with it because it imperils the livelihood of persons and communities while the
people in power gain at the expense of the masses. “Do not lie to each other, since you have
taken off your old self with its practices” (Colossians 3:9) and “An honest answer is like a kiss
on the lips.” (Proverbs 24:26) Through these verses, we learn how important it is to God that we
tell the truth. Our trust is to be put God and not on anything on earth, pointing to the main focus
of scripture that our trust is to be in God. Just like the Enron Corporation’s scandal, investors put
their trust on the company’s management and the management put their trust in power and gain.
But because of the selfishness of the company elite, they decided to scam the public by telling
them Enron was in a strong condition and they did not need to worry about the company. Even if
we do find ourselves in a position of difficulty and loss, God tells us to admit the truth and trust
Him. And then, He shows us that even when things appear to be dark, He will assure us that we
can trust Him and that He will provide.