Analyzing The Enron scandal

Analyzing The Enron scandal

Enron’s downfall was preceded by unethical actions regarding investment and accounting. First, the company recorded false revenue that financial analysts and investors based their analysis and decision to invest in the company. By sticking to mark-to-market accounting, the company recognized revenue even before it could earn it. For instance, in 2000, Enron struck a deal with Blockbuster and estimated revenue from the deal at $100 million (Company Man, 2017). Although the Blockbuster deal collapsed almost immediately due to streaming issues, Enron recorded $100 million as revenue in its accounting books (Company Man, 2017). Recording false revenue created false confidence among its investors.

Falsified reporting on revenue was not only limited to the Blockbuster deal, as the company treated estimated expected revenue in other deals as actual revenue. The reports created a false impression that increased investor confidence about the company’s future financial prospects, leading to increased investments. So high was investor confidence that some of Enron’s employees and outside constituents invested their entire retirement earnings in the company.

Another key issue raised in the video is the falsification of liabilities. Enron Company managers formed many side companies and pushed their debt to these companies, creating an impression that they had little liability (Company Man, 2017). The company convinced investors that Enron had sound financial management practices, and they were willing to invest in it. Based on these accounting tricks, Enron managed to keep stock prices rising and sustained the price at $80 per share. This was a clear scheme to defraud investors, knowing that the share prices would eventually fall.

Also, Enron successfully bribed auditors to overlook their unethical practices. A listed company requires the services of auditors who ensure financial books are legitimate and assure investors that the company is heading in the right direction. Arthur Anderson, then a reputable auditing company working for Enron Company, was bribed by the company’s executives, Ken Lay and Jeff Skilling, to overlook serious accounting flaws (Johnson, 2003). The two executives are also responsible for the deceit, having lied that they were unaware of the accounting flaws.

Conclusion

In summary, top officials at Enron abused their power and privileges. The officials manipulated accounting information and engaged in deceitful treatment of internal and external constituents. Auditors also failed to exercise oversight on behalf of the company investors, eventually leading to huge losses.

References

Company Man. (2017). The Enron scandal – A simple overview [YouTube Video]. In YouTube. https://www.youtube.com/watch?v=hwollZoVmUc

Johnson, C. (2003). Enron’s ethical collapse: Lessons for leadership educators. Journal of Leadership Education, 2(1), 1–2003. https://journalofleadershiped.org/wp-content/uploads/2019/02/2_1_Johnson.pdf

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The video below is about the Enron Scandal. The results of the scandal created sweeping changes in accountability measures in businesses, especially open corporations. However, the cause came directly from unethical leaders and their actions.
Your task this week is to view the video and think critically about the key points that highlighted unethical behavior on the part of the leaders. Analyze and don’t summarize.
THIS IS THE LINK TO THE VIDEO: https://youtu.be/hwollZoVmUc
Just in case the video doesn’t work, the video is on YouTube. Its called “The Enron Scandal – A Simple Overview.”

https://youtu.be/hwollZoVmUc?si=5a_lIzypxh0cJcOQ