This essay discusses the scandal of Enron Corporation. In the first part, main reasons having led to its sudden and scandalous downfall will be explained; in particular accounting and business practices as well as corporate governance will be outlined. Subsequently, in the second part, important parties having been involved will be shown; notably the role of the auditing company Arthur Andersen and their conduct will be analyzed. In a final step, aftermaths for Enron, Arthur Andersen and further involved actors will be outlined. A special focus will be on consequences for the accounting world and how regulations have been changed in order to prevent future accounting violations.
Table of Contents
- 1. Introduction
- 2. The Enron Scandal
- 2.1 Business and Accounting Practices
- 2.2 Corporate Governance
- 2.3 Involved Parties
- 2.4 The Downfall of Enron
- 3. Arthur Andersen as Auditor
- 4. Prevention of the Scandal
- 5. Consequences
- 5.1 Enron and Andersen
- 5.2 Sarbanes-Oxley Act
- 6. Conclusion
- 7. References
Objectives and Key Themes
This term paper aims to analyze the Enron scandal, exploring the contributing factors that led to its collapse. The paper investigates Enron's questionable business and accounting practices, the role of corporate governance failures, and the involvement of key parties, particularly Arthur Andersen. Finally, it examines the consequences of the scandal and subsequent regulatory changes.
- Questionable accounting practices and the use of special purpose entities (SPEs).
- Failures in corporate governance and oversight.
- The role of Arthur Andersen as auditor and its contribution to the scandal.
- The consequences of the Enron scandal for the accounting world and regulatory reforms.
- The impact of mark-to-market accounting on Enron's financial reporting.
Chapter Summaries
1. Introduction: This introductory chapter sets the stage by outlining Enron's rapid growth from a natural gas pipeline company to a major energy trader and its eventual spectacular collapse in 2001, highlighting the drastic decline in its stock value from approximately $100 to mere pennies. The chapter establishes the scope of the paper, indicating its focus on the causes of Enron's downfall, the roles of key players, and the lasting repercussions of the scandal.
2. The Enron Scandal: This chapter delves into the core of the Enron scandal, exploring the questionable business and accounting practices that contributed to its demise. It provides an overview of Enron's use of special purpose entities (SPEs) to hide debt and inflate profits, creating a false impression of financial health. The chapter lays the groundwork for the detailed examination of specific practices and their consequences in subsequent subchapters.
2.1 Business and Accounting Practices: This section focuses on the manipulative accounting techniques employed by Enron. It details the use of SPEs like Chewco, Whitewing, and LJM2, explaining how they allowed Enron to shift debt off its balance sheet and artificially inflate profits. The extensive use of securitization and the deceptive "prepays" scheme are analyzed as crucial components of Enron's fraudulent financial practices. The chapter also examines Enron's use of mark-to-market accounting, highlighting how it was exploited to recognize inflated future profits, creating a unsustainable financial house of cards.
2.2 Corporate Governance: This section analyzes the failures in Enron's corporate governance that enabled and exacerbated the scandal. While acknowledging the presence of experienced board members, it highlights the board's failure to adequately oversee Enron's complex financial structures and to prevent the company from engaging in illegal accounting practices. The lack of effective oversight and the inherent conflicts of interest within the board are discussed as significant contributing factors to the collapse.
3. Arthur Andersen as Auditor: This chapter examines the role of Arthur Andersen, Enron's auditing firm, in the scandal. It analyzes Andersen's failure to properly audit Enron's financial statements and its complicity in the fraudulent activities. The chapter explores how Andersen's conflict of interest, derived from its lucrative consulting relationship with Enron, compromised its independence and objectivity as an auditor, ultimately contributing to the scandal's success.
4. Prevention of the Scandal: This chapter explores potential measures that could have prevented the Enron scandal. It discusses the importance of stronger corporate governance, more robust accounting standards, and increased auditor independence. The chapter likely suggests improved regulatory oversight and enhanced transparency as vital steps in preventing similar future scandals.
5. Consequences: This chapter details the aftermath of the Enron scandal, focusing on its impact on Enron itself, Arthur Andersen, and the broader accounting world. The chapter examines the bankruptcy of Enron and the dissolution of Arthur Andersen, and explores the enactment of the Sarbanes-Oxley Act as a direct response to the scandal, detailing the major changes to corporate governance and accounting regulations designed to enhance financial transparency and accountability.
Keywords
Enron scandal, corporate governance, accounting fraud, special purpose entities (SPEs), mark-to-market accounting, Arthur Andersen, Sarbanes-Oxley Act, securitization, financial reporting, corporate bankruptcy.
Enron Scandal Term Paper: Frequently Asked Questions
What is this document?
This is a comprehensive preview of a term paper analyzing the Enron scandal. It includes the table of contents, objectives and key themes, chapter summaries, and keywords. The preview is intended for academic use and analysis of themes.
What are the main topics covered in the term paper?
The term paper delves into the Enron scandal, examining its questionable business and accounting practices, failures in corporate governance, the role of Arthur Andersen as auditor, and the consequences of the scandal, including the subsequent Sarbanes-Oxley Act.
What specific accounting practices are discussed?
The paper analyzes Enron's use of special purpose entities (SPEs) to hide debt and inflate profits, the use of mark-to-market accounting, securitization, and the "prepays" scheme. It details specific examples like Chewco, Whitewing, and LJM2.
What role did corporate governance play in the Enron scandal?
The paper highlights the failures in Enron's corporate governance, including the board's inadequate oversight of complex financial structures and the inherent conflicts of interest that enabled illegal accounting practices.
What was Arthur Andersen's role in the scandal?
The term paper investigates Arthur Andersen's failure to properly audit Enron's financial statements and its complicity in the fraudulent activities. It emphasizes the conflict of interest stemming from Andersen's consulting relationship with Enron.
What were the consequences of the Enron scandal?
The paper discusses the bankruptcy of Enron and the dissolution of Arthur Andersen. A significant focus is on the enactment of the Sarbanes-Oxley Act and the changes it brought to corporate governance and accounting regulations to enhance transparency and accountability.
What are the key takeaways or conclusions of the term paper?
While not explicitly stated in the preview, the paper aims to provide a thorough analysis of the factors contributing to the Enron scandal and its lasting impact on the corporate world and regulatory landscape. It likely emphasizes the importance of robust corporate governance, independent auditing, and strong accounting standards in preventing future similar scandals.
What are the keywords associated with this term paper?
Enron scandal, corporate governance, accounting fraud, special purpose entities (SPEs), mark-to-market accounting, Arthur Andersen, Sarbanes-Oxley Act, securitization, financial reporting, corporate bankruptcy.
What is the structure of the term paper?
The paper follows a logical structure, starting with an introduction, followed by a detailed exploration of the Enron scandal, the role of Arthur Andersen, preventative measures, consequences, and concluding remarks. It's organized into clearly defined chapters and subchapters.
Who is the intended audience for this document?
This document is primarily intended for academic use, providing a structured overview for researchers and students interested in analyzing the Enron scandal and its related themes.
- Quote paper
- Milena Luke (Author), 2016, The Enron Scandal. Main Reasons for the Downfall of the Company, Munich, GRIN Verlag, https://www.grin.com/document/445639
