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Lessons Learned from the Enron Scandal - Term Paper Example

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Lessons Learned from the Enron Scandal.
The Enron scandal which disclosed in October 2001, led to the bankruptcy of the Enron Corporation. Enron Corporation was an American energy company which was established in Houston, Texas…
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Lessons Learned from the Enron Scandal
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"Lessons Learned from the Enron Scandal"

Download file to see previous pages The bankruptcy of such a big organization is regarded as the greatest setback in American history. The dissolution of Enron was the result of its own false practices illegal dealings of projects and not showing their debts on their company’s accounts. (Project 2000_25_Corporate) It was regarded as the greatest failure in terms of audit. Enron was established in 1985 by Kenneth Lay after the merger of Houston Natural Gas and Inter North. This merger created the largest gas pipeline system in America. In the 1990’s Kenneth Lay took an initiative to sell the electricity at market prices and the resulting markets helped him to sell the electricity at higher rates as a result increasing their income. Enron not only delivered natural gas but also became a market middleman for energy and brought the buyers and sellers of energy on one platform. Enron in just 15 years reached such a position where it became America’s seventh biggest company which employed 21,000 employees in more than forty countries. (Enron scandal-at-a-glance, 2002) Enron became dominant in the trading of energy contracts and financial instruments known as Derivatives. By 1992, Enron became the largest seller of natural gas in North America with earnings of $122 million. In the late 1990’s Enron was considered as the best in the world as it controlled twenty five percent of all electricity and natural gas contracts. In November 1999, Enron’s online website was established which helped the company to manage its contracts more efficiently. This website of the corporation in no time became the largest e-business site of the world. Enron also invested in physical facilities. Enron in the beginning was an insurance company. For further development of the company, Enron purchased a number of assets which included gas pipelines, electricity plants, water plants and broadband services all over the world. The company also incurred revenue by dealing in the same products and services in which it had been involved. The stock of Enron rose from the beginning of the 1990’s until 1998 by 311% which was a remarkable increase in the rate of growth. Apart from that Enron was rated as the most innovative corporation in America, in the survey of Fortune’s most Admired Companies. After many years Jeffery Skilling was hired who developed the idea of using such an accounting system which could hide debts in billions from the failed deals. Not only him but Andrew Fastow Chief Financial Officer and many other executives misguided the board of directors of the Enron company. The shareholders of the Enron Company lost 11$ billion which was as high as US$90 per share in the middle of 2000 but fell to less than 1$ at the end of Nov 2001.As a result of which the U.S. Securities and Exchange Commission started to investigate the matter. The decline of Enron started when its investors became known of the “off balance sheet” partnerships that were hiding billions of dollars of debts. One of the deals with Blockbuster Inc. which was a video rental company to provide movies on the internet was also cancelled in March. Moreover the rival company Dynegy offered to purchase the company and the deal was finalized on December 2, 2001. The Enron Company finally filed for the bankruptcy of the company. In the U.S. history Enron was the largest corporate bankruptcy until WorldCom’s was declared bankrupt the next year. Moreover there were many executives who were blamed for a number of charges and were then sentenced to prison. Moreover, Arthur Andersen the auditor of the corporation ...Download file to see next pagesRead More
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