Enron Scandal Essay

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Name: Rosario Carbonell Subject: Financial Accounting Professor: Diana Dela Vega Date: September 9, 2013 Title: Reaction Paper: Enron Case Background: Enron Company was established in 1985 by Kenneth Lay in Houston, Texas and was viewed as one of the most successful companies in America before the start of its downfall in 2001. It was considered as the seventh largest company in America and was named as America’s most innovative company for several consecutive years (1996-2001). Its core business remained to be the transmission and distribution of power but is also known to have branched out into non-energy related industries a few years from the date of its founding. Other fields it ventured into were: Internet bandwidth, off-shore investments, risk management and insurance for seasonal business. It was said to be a source of its phenomenal growth and tremendous increase in money earnings. Over the years, Enron employed over 20,000 employees and claimed revenue of $101Billion in 2000. Due to very questionable financial statements and various creative accounting practices used by Enron, an investigation into its complex network of off-shore partnerships and accounting practices took place. Enron’s main motivations for its blunders were due to the preservation of its high stock prices and good credit ratings in order to maintain and attract more traders. It used several accounting techniques (SPEs, Mark to Market, FAS 140 transactions, Tax transactions, Share trust transactions, Minority Interests and Pre-pays) that although, not all are in conflict with accepted accounting rules and practice, provided ways to overstep the limits of ethical and proper accounting standards. Financial reports provided to shareholders and external parties were less detailed compared to the amount of business and transactions it actually generates. The actual

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