The Enron Scandal Of The United States - 1855 Words

The Enron Scandal is still viewed today as one of the largest corporate bankruptcies in history. The greed that spilled throughout the organization started with gradual disregard for basic accounting principles. Initiated by small discrepancies in the company financial system became extreme financial crimes that left many without jobs and many investors penniless. The Enron scandal led to legislation that tightened restrictions on accounting practices in the U.S. requiring more strict compliance with GAAP. Kenneth Lay founded Enron Corporation in 1985. This new energy company was the result of a merger between the natural gas pipeline companies Houston Natural Gas and InterNorth. Throughout the 1990s the company was viewed as a†¦show more content†¦The internal practices continued in large measure because of improper auditing from accounting firm Arthur Andersen. David B. Duncan, the leading audit partner to Enron, overturned many accounting concerns in the late 1990s such as fake transactions to hide debt and misrepresentation of earnings on financial statements. Enron earned its profits by providing services like wholesale trading and overseeing energy facilities. They adopted the ‘merchant’ model of accounting instead of the ‘agent’ model. Enron was not taking the risk of buying and selling contracts nor were they earning the entire value of these contracts. Enron merely collected a brokerage fee for handling the transaction. However, by using the ‘merchant’ model over the ‘agent’ model, they were able to report the entire value of the contracts they were a part of as earnings. This led to grossly overstated revenues on their balance sheet of over 600 million from 1997 to 2000. To keep up with this bubble of revenue, Enron had to continue to mark up its earnings to outperform past results in order to move their stock price upwards. In 1990, Jeffery Skilling joined Enron and was involved in managem ent. He later became President and COO and by 1997 the only one above him was the founder, Kenneth Lay. Skilling insisted on the trading business using ‘Mark-to-Market’ accounting for their long-term contracts insteadShow MoreRelatedEnron Essay1433 Words   |  6 Pagesthe Causes and Effects of the Enron Accounting Scandals Name: Do Minh Tam Class: MEP 100 Lecture: Karen Bird Date: December 24, 2010 Introduction Background From the 1980s until now, there have been a lot of accounting scandals which were widely announced on by media. The result of this situation is many companies were bankruptcy protection requests, and closing. One of the most widely reported emulation of accounting scandals is Enron Company. Enron Corporation is one of the largestRead MoreJaclyn Givens. Kathy Osburn. Management 101. 5/8/17. 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The total debt amounted to over $ 16 billion, which was the largest corporate bankruptcy in American history. Shareholders lost 60 billion dollars within a few days, 4500 employees lost their jobs, and the employees lost billions in pension benefits. I had never heard the name of Enron nor Enron’s scand al until I watched a film, â€Å"Enron: The Smartest Guys in The Room,† but I realized the Enron scandal affected the whole of the business in the United States. What were the causes