In: Business and Management

Submitted By avecamourstacy
Words 2037
Pages 9
Case Study: Enron Corporation and Andersen LLP
Enron was one of the biggest companies, in the industry of electricity, natural gas, and paper manufacturing. The Company's revenues in 2000 were 111 billion, which made Fortune magazine Comrade crowned her the most innovative in the United States for six consecutive years. At the end of 2001, the company declared bankruptcy with approximately -65.5 billion dollar in debt and the company’s share price fell within a few weeks from a high of nearly ninety dollars to only few cents. As of 2013, it ranks sixth largest bankruptcy of all time.
Many decisions and risks that Enron took led them to their collapse. Enron faced risks as of any other energy company such as instability of prices, and as they grew to be a global company they faced foreign currency risks, and different regulations, policies and political risks unique to each country. The complex nature of Enron made the company face greater risks, and that pressure led them to adopt aggressive financial reporting practice, this model increased the likelihood of material misstatements. It enabled the management to overstate its revenue while not disclosing the actual value of its debt. The risk of fraud by management was high. The transactions involving SPE's essentially involved Enron receiving borrowed funds that were shown as revenue without recording liabilities. Also, the amount of misstatements was huge as Enron had hundreds of such SPE's. Complex financial derivative transactions were used to hide enormous amounts of debt. Huge increases in borrowing were made to look like hedges for commodity trades rather than new debt financing. The network of SPE's along with complicated speculations and hedges kept an enormous amount of debt off the balance sheet. The accounting standards were inadequate in providing for the proper accounting of these transactions. The…...

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