Enron Corporation was an American energy, commodities, and services company that

became infamous for one of the biggest corporate scandals in U.S. history. Founded in
1985 and headquartered in Houston, Texas, Enron grew rapidly to become one of the
largest and most prominent energy companies in the world.

Enron's downfall began in the early 2000s when it was revealed that the company had
engaged in widespread accounting fraud and financial mismanagement. The scandal
involved deceptive accounting practices that allowed Enron to hide its debt and inflate
its profits. Key aspects of the scandal included the creation of special purpose entities
(SPEs) that were used to manipulate the company's financial statements and obscure its
financial health.

Company Profile: Enron Corporation

Company Name: Enron Corporation

Founded: 1985

Headquarters: Houston, Texas, United States

Key People:

 Kenneth Lay - Chairman and CEO (1986-2001)

 Jeffrey Skilling - President and CEO (February-September 2001)
 Andrew Fastow - CFO (1998-2001)

Overview: Enron Corporation was once a prominent American energy, commodities,

and services company. It experienced rapid growth in the 1990s and early 2000s,
becoming one of the largest and most admired corporations in the United States.
However, its spectacular rise was followed by an even more dramatic fall due to one of
the most significant corporate scandals in history.

Corporate Scandal: Enron's downfall stemmed from a massive corporate scandal that
came to light in 2001. The company was involved in fraudulent accounting practices that
allowed it to conceal its true financial health. Key aspects of the scandal included the use
of special purpose entities (SPEs) to manipulate financial statements and hide debt. This
resulted in the inflation of profits and the misrepresentation of the company's financial
stability.
Consequences: The revelation of Enron's accounting irregularities led to a rapid loss of
investor confidence, causing Enron's stock price to plummet. In December 2001, the
company filed for bankruptcy, marking one of the largest bankruptcies in U.S. history at
that time. Thousands of employees lost their jobs, and shareholders saw the value of
their investments wiped out.

Legal Actions: Several Enron executives, including CEO Jeffrey Skilling and CFO Andrew
Fastow, faced legal action and were eventually convicted on various charges related to
the scandal. Kenneth Lay, the company's Chairman, was also indicted but died before his
sentencing. The legal proceedings resulted in prison sentences for some of the key
players.

Regulatory Impact: The Enron scandal had profound repercussions on the corporate
world. It prompted increased scrutiny of corporate governance, accounting practices,
and financial reporting. The Sarbanes-Oxley Act of 2002 was enacted in response to this
scandal, implementing new regulations and standards to enhance transparency and
accountability in corporate America.

Legacy: Enron's collapse remains a symbol of corporate greed, ethical misconduct, and
the catastrophic consequences of unchecked corporate power. It serves as a stark
reminder of the importance of transparency, accountability, and ethical behavior in the
business world.

Bankruptcy Date: December 2, 2001

Here is a summarized timeline of the important events in the rise and fall of Enron
Corporation:

1985:

 Enron Corporation is founded in Houston, Texas, by Kenneth Lay through the

merger of two natural gas pipeline companies.

1990s:
  Enron transforms itself from a traditional energy company into a complex
conglomerate, focusing on energy trading, telecommunications, and other
businesses.
 The company aggressively pursues growth and expansion into international
markets.

Late 1990s:

 Enron becomes known for its innovative and aggressive accounting practices.
 It creates numerous special purpose entities (SPEs) to keep debt off its balance
sheet, making its financial condition appear stronger than it is.
 The company's stock price soars, making it one of the most valuable corporations
in the world.

2000:

 The stock market begins to experience turbulence, and Enron's stock price starts
to decline.

August 2001:

 Enron Vice President Sherron Watkins sends an anonymous memo to CEO

Kenneth Lay warning of accounting irregularities and the potential for an
"implosion" of the company.

September 2001:

 CEO Jeffrey Skilling resigns unexpectedly, and Kenneth Lay reassumes the
position of CEO.

October 2001:

 Enron reports a third-quarter loss of $618 million and a significant reduction in

shareholder equity.

Late 2001:

 Enron's financial troubles escalate, and the company's credit rating is

downgraded.
December 2, 2001:

 Enron files for bankruptcy, marking one of the largest bankruptcies in U.S. history
at the time.

2002:

 Investigations into Enron's accounting practices and corporate governance begin.

 Key executives, including Jeffrey Skilling and Andrew Fastow, are indicted on
various charges related to the scandal.

2002 (Continued):

 The Sarbanes-Oxley Act is enacted by the U.S. Congress, introducing significant

reforms in corporate governance and financial reporting to prevent similar
corporate scandals in the future.
 Arthur Andersen, Enron's accounting firm, is found guilty of obstructing justice by
destroying documents related to Enron's audits.

2006:

 Jeffrey Skilling is convicted on multiple counts of fraud, conspiracy, and insider

trading, receiving a prison sentence of 24 years.

2006 (Continued):

 Enron's Chief Financial Officer, Andrew Fastow, pleads guilty to charges of fraud
and conspiracy and receives a prison sentence.

2006 (Continued):

 Kenneth Lay is convicted on multiple charges but dies of a heart attack before
sentencing; his convictions are later vacated.

2008:

 Arthur Andersen's conviction is overturned by the U.S. Supreme Court, but by this
time, the firm had already collapsed.
 4

The auditor of Enron Corporation was the accounting firm Arthur Andersen. Arthur
Andersen was one of the "Big Five" accounting firms at the time and had a longstanding
relationship with Enron, providing both audit and consulting services.

What Arthur Andersen did in the Enron scandal:

1. Questionable Accounting Practices: The auditor was heavily involved in

approving and, in some cases, even facilitating Enron's questionable accounting
practices. This included the creation of special purpose entities (SPEs) that were
used to hide Enron's debt and artificially boost its profits. Arthur Andersen failed
to raise adequate concerns about these practices during its audits.
2. Document Destruction: One of the most significant actions that contributed to
Arthur Andersen's downfall was the destruction of a large number of documents
related to its audits of Enron. This document shredding occurred when the U.S.
Securities and Exchange Commission (SEC) initiated an investigation into Enron's
accounting irregularities. The destruction of documents raised suspicions and
hindered investigators in uncovering the extent of Enron's misconduct.
3. Conflict of Interest: Critics argued that Arthur Andersen had a conflict of interest
because it was not only auditing Enron but also providing lucrative consulting
services to the company. This dual role raised questions about the independence
and objectivity of the audit.

As a result of its actions, Arthur Andersen faced legal action and was found guilty of
obstructing justice in 2002 for its role in shredding documents related to the Enron
audit. This verdict led to the demise of Arthur Andersen as a major accounting firm, and
it eventually surrendered its license to practice as a Certified Public Accountant (CPA)
firm. The firm's downfall had far-reaching consequences, including the loss of jobs for
thousands of its employees and the restructuring of the accounting industry to reduce
conflicts of interest between audit and consulting services.

The Sarbanes-Oxley Act of 2002, commonly referred to as SOX, is a significant piece of

U.S. legislation that was enacted in response to corporate accounting scandals, most
notably the Enron scandal and the financial misconduct at companies like WorldCom
and Tyco International. The act is named after its co-sponsors, Senator Paul Sarbanes
and Representative Michael G. Oxley.
The Sarbanes-Oxley Act introduced a wide range of reforms and regulations aimed at
enhancing corporate governance, financial transparency, and the integrity of financial
reporting within publicly traded companies.

The Sarbanes-Oxley Act was enacted with the intention of restoring investor confidence in
financial markets and preventing future corporate accounting scandals. It had a significant
impact on the way publicly traded companies operate and how financial information is reported
and audited. While it introduced a more rigorous regulatory framework, it also imposed
additional compliance costs on businesses. SOX compliance remains an essential part of
corporate governance and financial reporting in the United States.

The Sarbanes-Oxley Act (SOX) of 2002 was authored by U.S. Senator Paul Sarbanes and U.S.
Representative Michael G. Oxley, both of whom were members of the U.S. Congress at the time.
Senator Sarbanes was a Democrat from Maryland, and Representative Oxley was a Republican
from Ohio. They co-sponsored the legislation in response to a series of high-profile corporate
accounting scandals, including the Enron scandal, with the goal of improving corporate
governance, financial transparency, and the integrity of financial reporting within publicly traded
companies. The act is commonly referred to as the Sarbanes-Oxley Act in recognition of its co-
sponsors.

The underlying principle behind the enactment of the Sarbanes-Oxley Act (SOX) in 2002 was to
restore investor confidence in financial markets and to improve corporate governance,
transparency, and the integrity of financial reporting. Several key principles and objectives
guided the creation of SOX:

1. Enhancing Corporate Accountability: SOX aimed to hold corporate executives,

particularly CEOs and CFOs, accountable for the accuracy and completeness of
financial statements. The act required top executives to certify the accuracy of
financial reports and imposed severe penalties, including criminal charges, for
false certifications.
2. Strengthening Auditing and Auditor Independence: SOX sought to
strengthen the independence and objectivity of external auditors by imposing
restrictions on the provision of non-audit services to audit clients. The creation of
the Public Company Accounting Oversight Board (PCAOB) further enhanced
oversight of the auditing profession.
3. Improving Internal Controls: The act mandated that companies establish and
maintain effective internal controls over financial reporting. This requirement
aimed to reduce the likelihood of financial fraud and errors by ensuring that
companies have proper procedures and checks in place.
 4. Enhancing Financial Disclosures: SOX required companies to provide more
detailed and timely financial disclosures, including information about off-
balance-sheet transactions and related-party transactions. This increased
transparency was intended to help investors make more informed decisions.
Overall, the underlying principle of the Sarbanes-Oxley Act was to address the breakdown in
corporate ethics and governance that had led to a series of corporate accounting scandals in the
early 2000s. By establishing stricter regulations, increasing transparency, and imposing greater
accountability on corporations and their executives, SOX aimed to restore trust in the financial
markets and protect the interests of investors and the public.

The Sarbanes-Oxley Act (SOX) had a profound and lasting impact on the field of
accounting. Its effects on the accounting profession include:

1. Increased Regulatory Scrutiny: SOX introduced heightened regulatory scrutiny

of accounting practices, particularly those related to publicly traded companies.
The creation of the Public Company Accounting Oversight Board (PCAOB)
established an additional layer of oversight and regulation for auditing firms,
leading to increased compliance requirements and scrutiny of their work.
2. Enhanced Auditor Independence: SOX imposed restrictions on the types of
non-audit services that auditors could provide to their audit clients. This was
aimed at reducing conflicts of interest and ensuring that auditors maintain their
independence and objectivity.
3. Strengthened Internal Controls: The act mandated that companies establish
and maintain effective internal controls over financial reporting. As a result,
accountants and auditors have had to focus more on evaluating and testing
internal controls to ensure that financial information is accurate and reliable.
4. Increased Accountability: SOX significantly increased the accountability of
corporate executives, including CEOs and CFOs, for the accuracy of financial
reporting. Executives are now required to personally certify the accuracy of
financial statements, and they can face criminal penalties for false certifications.

Overall, SOX has significantly transformed the accounting profession by imposing stricter
regulations, enhancing transparency and accountability, and reshaping the way financial
information is audited, reported, and controlled. While it has had a positive impact on financial
reporting integrity, it has also led to increased costs and complexities for businesses and their
auditors.