2. Enron corporation was and energy service company based in Houston, Texas. They employed more than twenty two thousand employees and Fortune Magazine named Enron America’s Most Innovative Company for six consecutive years.
3. Arthur Andersen, the accounting company auditing Enron was one of the major accounting firms before the scandal. After the exposure Enron had to file bankruptcy while Andersen was slowly dissolved. Along with being the largest bankruptcy reorganization in American history at that time, Enron is undoubtedly the biggest audit failure.
4. Bethany McLean was the first to report in March 2001 that something was wrong with Enron’s reporting. Her research caused a lot of red flags to fly and led to further investigation in the company.
5. Right: Jeff Skilling, CEO Left: Ken Lay, CEO Both were heavily involved and benefitted from the corrupt activity at Enron.
6. After all the red flags that indicated Enron was up to no good, it was later discovered that Enron recorded assets as profits inflated, or even fraudulent and nonexistent. Offshore accounts were used to cover debts and losses and were excluded from the firm’s financial statements. Enron also hired public accountants to find loopholes. This chart shows the stock price dramatically drop when the corruption was discovered.
7. After lots of trials and repercussions of the scandal, twenty were found guilty of fraud. Lay and Skilling were both found guilty. Before sentencing Lay died on vacation July 5, 2006. Skilling is currently serving a 24 year sentence at the Federal Correction Institute in Englewood, Colorado
8. The demise of both companies lead to a significant change in the accounting industry. The Sarbanes-Oxley Act was passed on July 30, 2002. The act was designed as an answer to the numerous corporate accounting scandals that came to light in 2001 and 2002. This act mandated a number of reforms to bolster corporate responsibility, strengthen disclosure, and combat fraud.
