Business Analysis: The Enron Scandal

ABSTRACT

The Enron scandal explains about the activities of the particular key workers of the organization as well as the activities of the top control performed a crucial part in the downfall of the organization. Enron used market-to-market accounting technique, which later backfired. Another reason was that in Enron, rewards and rewards in way of money or share came in profits only if you were excellent enough and if you were regarded one of the moneymakers. Moreover the culture within Enron was quite competitive and also if we talk about the key players that lead to this scandal then the upper level management could have been blamed. Enron scandal could have been avoided had there been a truly separate and purpose evaluation of its financial

In early 1990s, the company started the business of selling of electricity and later the deregulating of the energy market allowed many companies like Enron to sell energy at much higher prices, thereby significantly increasing its revenue.

By 1993, Enron had set-up many limited liabilities special-purpose entities that allowed the company to hide liabilities while reporting growing stock prices. Creative accounting techniques allowed Enron to window dress and show more financial strength on paper than it really had. Those special purpose entities/ subsidiaries had all a single purpose to hide risky investment activities of Enron and its financial losses. Forensic accounting later on determined that many of the Enron's reported assets and profits were all inflated, and even, completely fraudulent and nonexistent. Some of the debts and losses of the company were recorded in offshore entities, which remained absent from the Enron's financial

Aside from deviating away from the company because he was too active interacting, he and his close relatives abused the organization resources. At one factor, they were all using the organization airplanes for individual moves. (Petrick & Scherer, 2003) He was also engaged in fringe movement and fraud in the organization to be able to protect up its pitfall. Also, the lack of strict legislation surrounding employees’ benefits and pension funds by government and lack of check on auditors by the government can be one of the factors that resulted into this Enron scandal.

In the Enron case the stakeholders that suffered most of the losses of the company were its employees who lost all their retirement funds invested in the form of Enron stocks, and the general public who have invested their funds in the company’s stocks and lost all their investments when overnights the stock prices of the Enron dropped from $90 to less than $1. Furthermore, a big question was raised on the efficiency and effectiveness of the regulatory authorities especially on the working of the US SEC. after the collapse of the Enron the public trust was badly shaken which affected the overall economy