This presentation is basically on the Enron's scandal. Here the maximum focus is given to auditor's role in this fraud. Moreover, the management's role is also highlighted.

2. A Presentation on

3. Names ID
Pantho Sarker 20-033
Md. Gulam Kibria 20-075
Md. Touhidul Islam 20-77
Khaleda Easmin 20-087
Sheikh Sajid Hasan 20-181

4. Now Presenting …..
Md. Gulam
Kibria
ID: 20-075

5. Former type Public
Industry Energy
Fate Bankruptcy
Predecessor
InterNorth (Northern Natural Gas
Company)
Houston Natural Gas
merged in 1985
Successor Dynegy
Prisma Energy International
Founded 1985 in Omaha, Nebraska, United States
Founder Kenneth Lay
Defunct 2007
Headquarters 1400 Smith Street
Houston, Texas, United States
Number of employees 20,600 during 2001
Website www.enron.com

6. Products
Online marketplace
services
Broadband services
Energy and
commodities services
Capital and risk
management services
Commercial and
industrial outsourcing
services
Project development
and management
services

7. Date Event
20 February, 2001 Fortune Magazine story calls Enron a highly impenetrable company and stock was overpriced.
14 August, 2001 Jeff skilling resigned as CFO, citing personal reasons. Kenneth Lay became CEO once again.
12 October, 2001 Arthur Anderson legal counsel instructs workers who audit Enron’s books to destroy all but the most basic documents.
16 October, 2001 Enron reports a third quarter loss of $618 million.
24 October, 2001 CFO Andrew Fastow who ran some of the controversial SPE’s was replaced
8 November, 2001 The company took the highly unusual move of restating its profits for the past four years. It admitted accounting errors,
inflating income by $586 million since 1997. It effectively admitted that it had inflated its profits by concealing debts in
the complicated partnership arrangements.
2 December, 2001 Enron filed for chapter 11-bankruptcy protection on the same day hit Dynegy corporation with a $10 billion breach of
contract lawsuit.
12 December, 2001 Anderson CEO Jo Berardino testifies that his firm discovered possible illegal acts committed by Enron.
9 January, 2002 US justice department launches criminal investigations.

8. Now Presenting …..
Khaleda
Yeasmin
ID: 20-087

9. Managements' role in the fraud

10. The
unique-
ness of
business.
Diversified
business
Inherent
Risks
Complex
accounting
system.
Complex
business
model.
Extremely
volatility

11. Unethical
corporate
culture
The managers were just concerned about their
personal benefits; they didn't have the ethical sense
to be reasonable and accountable to their actions.
Managerial
dishonest
activities
1. Complex accounting system adaption.
2. Overstatements of Revenues and assets.
3. Understatement of debt and liabilities.
4. Increase market share price with false information
and financial statements.
5. Collecting funds through selling of share and mis-
distribution of funds.
6. Selling of their shares before the collapse.

12. Embezzlement
of Funds
The managerial executives collected funds through
share capital but they didn't invest it rater the
embezzled the whole money.
The ultimate
results
The Largest bankruptcy in history.

13. Now Presenting …..
Md.
Touhidul
Islam
ID: 20-77

14. Auditor‘s role in the fraud

15. Aurther
Andersen
Operated with
fewer offices
It had "High
flying" companies
as client, Enron,
Worldcom etc.
Enron was
Andersen's 2nd
largest client
One of the 5
biggest accounting
firm
During 2000, it earned
$25 & $27 million as
audit and consulting
fee from Enron

16. How they did this….
The
Ways
They
Did It
The auditors have searched for new ways including loopholes in
GAAP to save the company money
One Enron accountant revealed, "We tried to aggressively use
GAAP, use it in our advantage and exploited the weaknesses
Andersen's auditors were pressured by Enron's management to
defer recognizing the charges from the special purpose entities.
They pressured Andersen into meeting Enron's earnings
expectations
Enron occasionally brought Ernst & Young or
PricewaterhouseCoopers to complete accounting tasks to create
the illusion of hiring a new company to replace Andersen
Though Andersen has a strong control over conflict of interest, it
failed in case of enron.

17. IMPACT ON ANDERSEN AND
CONVICTION
Finally,
Andersen
covicted
and ceased
to conduct
business in
June 2002
CEO
conceded
email
deletion
and
document
shredding
was an
error
They
delete
nearly
30,000
emails and
computer
files
Chief
auditor
ordered the
shredding
of thousand
of
documents
The
scandal
Broke
out

18. Now Presenting …..
Pantho
Sarker
ID: 20-033

19. • Enron’s value at it’s peak was about $ 70 billion.
• After filing for bankruptcy Enron’s stocks were delisted from the New York stock exchange.
• It was traded in pink sheets or OTC markets before the whole liquidation process completed.

20. Enron
Scandal
Broke
• Stock prices had been falling for a full 18 months prior to the event.
• A social mood downtrend caused the stock market to decline rather than the Enron Scandal.
• When the Enron scandal broke out the stock market was on its way to a probable recovery.
• The Scandal played a part in the latter year to affect investor sentiment and the stock market reaching a
new low.

21. Inflation (Source: world bank) Real interest rate (Source: world bank)
• Both inflation and interest rate dropped substantially from the period 2000 to 2002.
• The economy was already going through a recessionary phrase.
• The Enron scandal just added to the misery as Investors were reluctant to invest, resulting in an
increase in oil and electricity prices in the subsequent years.

22. Now Presenting …..
Sheikh
Sajid Hasan
ID: 20-181

23. Wiser Oil
Co.
Dominion
Resources Inc.
Dynegy Inc.
Loss: 6 million
Reason: Oil and gas hedges that it
had placed with Enron
Loss: special after-tax charge of $97
million
Reason: Estimated Enron exposure
Loss: $67 million after-tax charge
Reason: Exposure to Enron's
bankruptcy and costs related to the
terminated merger agreement.
• Electricity and natural gas companies were facing higher costs of capital.
• Projects to build power plants, pipelines and transmission lines were being put on hold.
• More than $12 billion of investment in new power plants were postponed.

24. 5000 employees got fired
Lost all health and
medical insurance
Lost all money of pension
fund

25. Lou L. Pai
chairman and CEO of
Enron Xcelerator
Cashed in $33,629,380
Disappeared after the
fraud
Kenneth L. Lay
chairman and CEO
Cashed in $16,103,181
Sentence: 45 years
Jeffrey K. Skilling
former president and
CEO
Cashed in $15,554,700
Sentence: 24 years, 4
months.

26. In June 2002, Arthur Andersen was convicted in a US federal court of the crime of
obstructing justice by shredding working papers related to Enron audits.
SEC disallowed all audits from convicted felons
The company surrendered its CPA license on August 31, 2002
85,000 employees lost their jobs
June 2005, the US Supreme Court overturned Andersen’s conviction on a legal
technicality, but did not absolve Andersen from guilt

27.  In response to Enron Scandal, The “Sarbanes-Oxley Act” was passed by U.S congress
in 2002 with the objectives of-
Closing loopholes in recent
accounting practices and
strengthening corporate
governance rules
Increasing accountability
and disclosure
requirements of
corporations and corporate
transparency in reporting
Increasing penalties for
corporate and executive
malfeasance
Strengthening whistle-
blower protections
Sarbanes-Oxley
Act