Enron Scandal Case Study

1.1 Introduction Founded by Kenneth Lay and based out of Houston, Texas, Enron Energy Corporation was once the sixth largest energy corporation in the world. Enron began out of a merger between Houston Natural Gas and InterNorth. Enron’s founder was a strong advocate for the deregulation of natural gas sales and was able to produce very large profits through the selling of electricity at market prices. In 1999, Enron created Enron Online, which was a business site generated to enable the trade of commodities. After the rapid growth and exorbitant revenues in the year 2000, Enron fell into a corporate accounting scandal and eventually filed for bankruptcy in late 2001.

1.2 Motivation for the Study Through the study of the Enron scandal

What were the mistakes made by Enron’s top employees and managers? What can be learned from this scandal to make better managerial decisions?

1.4 Significance and Contribution of the Study With the study of Enron’s practices we can view the inner workings of a company’s accounting system and the destruction it can have on a corporation if done inaccurately.

1.5 Outline of the Study Beginning with an introduction of Enron, we will then analyse the company’s accounting system and the role of financial incentives on the financial planning of the company.

Chapter 2 - Literature Review

2.1 Introduction

Nearly all of Enron’s troubles can be attributed to three men. Kenneth Lay the company’s founder, Jeffery Skilling Enron’s CEO, and Andrew Fastow Enron’s CFO. With Skilling’s introduction of mark-to-market accounting and Fastow’s keen ability for hiding the company’s financial losses, Enron was from a bird’s eye-view, a strong, stable, and extremely successful corporation. Unfortunately, behind the veil of deceit, Enron held very little assets and was taking enormous

A company fuelled exclusively by extensive profit margins with very little oversight. Through the manipulation of financial records and creative derivatives to hide debt, Enron was able to fool nearly everyone in their ability to make money. The company’s records were exceptionally confusing and provided very little, if any explanation as to how exactly they were earning their money. Although the decisions made by Enron’s top management allowed the company to make large profits, the means by which they did so were extremely unethical and should have been stopped long before they were. This study illuminates the increased need for auditing regulations, transparency of financial records, and better management oversight. A company’s finances are the energy behind its operations. If a balance sheet is unclear or vague, it is more than likely the company’s business processes are also puzzling. The Enron scandal teaches the importance of constructive, long-term management decisions and an accurate accounting system.

5.2 Managerial Importance of this