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Enron Scandal

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18 views

Enron Scandal

Uploaded by

DANNIELA PANCHO
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ENRON SCANDAL

Enron Corporation started as an energy supply company following a merger between


Houston Natural Gas Company and Omaha-based Inter North Incorporated in Houston,
Texas, founded in 1985. Eventually the company moved on to trading. It is one in the seven
largest corporation in America. Officers and employees at Enron engaged in numerous
fraudulent accounting practices and other crimes. They misrepresented the company's
earnings in financial reports to shareholders, extorted corporate funds, and illegally
manipulated energy markets, like creating totally fake power shortages to drive up electricity
prices. The company concealed financial losses and claimed profits on assets that were
actually losing money. Former Enron CEO Jeffrey Skilling served the longest sentence of the
many company executives sentenced for their roles in the scandal, and he was released from
federal prison in 2018. Former Enron Chairman Kenneth Lay, who died in 2006 after being
convicted of multiple crimes, and former Enron CFO Andrew Fastow, who was released from
federal prison in 2011 after serving six years of his 10-year sentence, were also involved in
the crimes. Also partner David B. Duncan, who oversaw Enron's accounts. And Arthur
Anderson was also related to Enron because he worked not just as an auditor for the company
but also as a consultant for it, destroying thousands of Enron documents, including not only
physical documents but also computer files and E-Mail files.

WORLDCOM

It is founded initially as a small company named Long Distance Discount Services in


1983, at WorldCom headquarters in Clinton, Mississippi. It merged with Advantage
Companies Inc to eventually become WorldCom Inc, naming its CEO as Bernard Ebbers.
WorldCom achieved its position as a significant player in the telecommunications industry
through the successful completion of 65 acquisitions spending almost $60 billion between
1991 and 1997.

However, between 1999 and early 2002, the company's CEO, Bernard Ebbers, and
other senior management used fraudulent and improper accounting methods to deceive
investors and other directors. Their fraudulent accounting method consisted primarily of two
approaches: "reduction of reported line costs" and "exaggeration of reported revenue." These
practices were to disregard generally accepted accounting principles (GAAP) while also
failing to inform financial statement users of changes to previously used accounting practices.
This was done in order to lower their E/R ratio, which is the primary key performance
indicator used to evaluate the performance of telecommunications companies. It is the
relationship between their main expenses; line costs (the rental of telephone lines) to their
revenues, and lower figures resulted in more analyst recommendations, which increased stock
prices. The lawsuit also accused Andersen of violating securities laws by failing to protect
investors from WorldCom's accounting fraud, which resulted in the largest bankruptcy filing
in US history.

ARTHUR ANDERSEN ACCOUNTING FIRM

The Arthur Andersen Accounting Firm was founded in Chicago in 1913 by a young
Northwestern University professor, Arthur Andersen, and a partner named Clarence DeLany.
The company began with two partners and six employees, who assisted customers with new
federal income taxes and other accounting issues. The firm collapsed by mid-2002, as details
of its questionable accounting practices for energy company Enron and telecommunications
company Worldcom were revealed amid the two high-profile bankruptcies. The scandals
were a factor in the enactment of the Sarbanes–Oxley Act of 2002.
WHAT IS OECD?

The Organization for Economic Cooperation and Development (OECD) is a one-of-


a-kind forum in which the governments of 37 democracies with market-based economies
work together to develop policy standards to promote long-term economic growth. The
OECD provides a platform for governments to share their experiences, seek solutions to
common challenges, identify best practices, and develop high standards for economic policy.
The OECD has been a reliable source of evidence-based policy analysis and economic data
for more than 50 years. At the OECD, the United States is collaborating with other members
to strengthen transparency, accountability, fiscal discipline, and responsiveness to member
priorities.

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