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Enron Sandal - Enron Sandal Abstract The research paper...
The Fall of Enron Paul M. Healy and Krishna G. This scandal shocked the entire nation. Moreover, it destroyed the. To provide a. This essay discusses the fall of Enron Corporation. Need essay sample on "Collapse of Enron"? The fall of Enron is blamed for its lack of strong corporate governance..
The Fall of Enron The fall of Enron Corporation is one of the most scandalous and shocking events in the financial world. Before its collapse in , Enron. You have an opportunity to look more closely at Enron along with analyzing why a big company that was so successful collapsed so quickly. You will look at internal. Read The Collapse of Enron free essay and over 89, other research documents.
The fall of enron essay
The Collapse of Enron. Who were the stakeholders involved in, or affected by, the. The author, through giving the historical beginnings of Enron, introduces a Corporation that initially stayed true to the values of hard work, idealism.. The falling of Enron, it is a story of old fashion robbery and terrible acts that brought about the demise of Enron. The top executives in charge could only execute. They were helped my Enron management in lot many ways. In , each director of company was extraordinarily compensated. But later, after Enron scandal, these stakeholders were hurt a lot also.
Two major banks called J. Morgan Chase and Citigroup were the one who faced major write downs on bad loans. Not only did Enron Creditors, shareholders and bondholders lose out, confidence also fell across the market, as investors questioned the integrity of the financial statements of other companies in which they held stock. Question 2: Considering all aspects of the case, what factor or factors do you believe most contributed to the collapse of Enron?
In your answer, please consider both external and internal factors. Key Stakeholders.
Accessed October 19, This is just a sample. You can get your custom paper from our expert writers.
The Enron Scandal: An Ethical Analysis | The Business Scholar
The company successfully seized the opportunity created by deregulation to create a new business as a market maker in natural gas and other commodities. Enron successfully influenced policymakers to exempt Accounting can be best described as a type of tool or language put in place in order to provide appropriate information with regards to the financial position of an organization, corporate or business. With this kind of information, it will always be critical to investors as it provides them with relevant and thorough information that It can happen for a number of reasons such as directors maximize self interest which have a debilitating effect on shareholder wealth and value of the company Wise Geek.
Large companies always have a strong concern on Even though a whole network of SPEs was established - and evidently also controlled, by Enron, they did not have to appear on its balance sheet due to the simple fact that there was no accounting standard requiring consolidation in A company was said to be an independent entity if at least three percent of the capital was provided by external investors.
When a new entity was to be established one of the Friends provided the necessary three percent outside capital. By using special pulpose entities, such as Chewco, Whitewing or LJM2, naming the most prominent ones, Enron took advantage of accounting rules Beasley et al. Two examples of how Enron availed itself of the SPEs will be explained in the following. Firstly, Enron used the method of securitization to a great extent. Securitization is a way to receive future cash flows immediately. If, for example, Enron owns an asset which is supposed to generate cash flows each month or each year, they would sell these future cash flows at a discount to special pulpose entities or other investors.
In return, Enron receives money it would have gotten in the future today Conerly, The advantage of securitization is that the company will get a lot of cash on a short-term basis; the disadvantage is that debt has not disappeared and is still to be repaid. Securitization itself is not illegal but Enron estimated its assets at sanguine values and used this method to the point of having nearly every asset securitized. Secondly, Enron established a Global Finance department with the single task to create cash flows.
Global Finance came up with the idea of prepays.
Prepays worked in a way that Enron signed a contract with one of their SPEs setting forth a certain amount of gas or electricity Enron is supposed to deliver to that entity in the future. This entity would pay Enron up front with money it received from its lender.
The lender himself had a contract with Enron as well: he should also deliver gas to Enron, and Enron would pay for it. For these transactions, Enron never recognized any loan but instead a trading liability. On the other hand, Enron also adopted an uncommon accounting method called mark-to-market accounting.
The mark-to-market method is a legal way allowing to recognize future returns from an asset at current market prices. If there is no active market stating a price companies are allowed to develop their own models helping to estimate the fair value. Companies are allowed to recognize the whole future profit at time of signing the contract and need to adjust this value regularly for profits or losses. For example, Enron did recognize revenue from a long-term project with Blockbuster under mark- to-market accounting.
To keep the mark-to-market accounting method going, new projects had to be concluded to keep the same or even higher amounts of revenues - a vicious circle. Once started it is difficult to drop out.
Extract of sample "Corporate Ethics: Enron Corporation Position Scandal"
Further, it has to fulfill three specific functions: have expertized members, ensure the company does not breach any law and that information given to external are accurate as well as to evolve a business plan. The involvement of the board and its wrong-doing will be explained in the following. It consisted of several well expertized and experienced individuals from business, legal and political areas.
However, financial structures of Enron were greatly complex and difficult to understand for external. Even if they had tried to understand the structures they would have probably gotten confused.