Enron case study accounting

  • Who was involved in the enron scandal
  • What did enron sell
  • Is enron still in business

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    Enron Scandal and Accounting Fraud: What Happened?

    Before its demise, Enron was a large energy, commodities, and services company based in Houston, Texas. Its collapse affected over 20,000 employees and shook Wall Street. At Enron’s peak, its shares were worth $90.75. When it declared bankruptcy on Dec. 2, 2001, shares traded at $0.26.

    Key Takeaways

    • Enron’s accounting method was revised from a traditional historical cost accounting method to a mark-to-market (MTM) accounting method in 1992.
    • Enron used special-purpose vehicles to hide its debt and toxic assets from investors and creditors.
    • The price of Enron’s shares went from $90.75 at its peak to $0.26 at bankruptcy.
    • The company paid its creditors over $21.8 billion from 2004 to 2012.

    Enron's History and Accounting Method

    Enron was formed in 1985 following a merger between Houston Natural Gas and Omaha, Neb.-based InterNorth. Houston Natural Gas' chief executive officer (CEO) Kenneth Lay became Enron’s CE

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    - fbi.gov

    Let's take a look at how such a large and promising company ended up giving way to one of the largest accounting scandals in history; resulting from various financial malpractices, accounting issues and eventually leading to the collapse of Enron.

    Introduction to Enron

    Enron Corporation was founded in 1985 as a result of a merger between Houston Natural Gas Corporation and InterNorth Inc. Enron soon became one of the largest suppliers of natural gas and electricity. However, during the merger, the company incurred a significant amount of debt due to a new law passed by the US församling. The lag deregulatedthe sale of natural gas, meaning that Enron lost its exclusive rights to its pipelines.

    Deregulation is the removal of regulations or restrictions in a certain industry.

    To survive this loss, the company had to quickly create a new business strategythat would generate cash flowand profits.

    Jeffrey Skilling, who previously worked as a consultant,

  • enron case study accounting

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    Enron scandal

    2001 accounting scandal

    The Enron scandal was an accounting scandal sparked by American energy company Enron Corporation filing for bankruptcy after news of widespread internal fraud became public in October 2001, which led to the dissolution of its accounting firm, Arthur Andersen, previously one of the five largest in the world. The largest bankruptcy reorganization in U.S. history at that time; Enron was cited as the biggest audit failure.: 61 

    Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, Lay developed a staff of executives that – by the use of accounting loopholes, the misuse of mark-to-market accounting, special purpose entities, and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives misled Enron's board of directors and audit co