1. RobinTeller
BUS 2050
August22, 2016
TestChapter4
The Enron collapse inlate 2001 was a resultof poor judgmentsbyuppermanagement. The
companyhad greatideaswhenitbegan,butovertime powerandgreed tookover.This endedup
havinga trickle-downeffect.
The unethical practicesseemedtobe commonplace throughoutthe company. WhenEnron
realizedthattheywere nolongermakingmoneyandlosingcredibility,theybegantofigure outwaysto
showprofit,eventhoughtheywere.TheyendedupborrowingmoneyfromWall StreetandJeff Skilling
came upwiththe legitimate wayof coveringupthe lossescalledMark-to-the-Marketaccountingwhich
ineffectisan accountingmethodof buyingandsellingsecurities. Thisisanextremelydangerouswayof
doingbusiness.
Enron’scontinuedtoshowprofitseventhoughtheycontinuedtolose money,bydoingOff-the-
balance-sheetfinancing.Theyinvestedmoneyintoentitiesthatwouldenduplosingmoney,but
accordingto theirbookswouldshowprofit.Whenthe investmentwouldfirstbe made,one entryfor‘x’
numberof dollarswouldbe entered,whenthe investmentwouldstartshowingaloss,Enronwouldsell
it off,therebyshowingaprofitfromthe sale.
It can to a pointwhere,Enronwasable toget powerinCaliforniaderegulatedandbeganto
orderrollingblackouts,therefore puttinglivesatrisk.Noone seemedtocare or if theydid,theysaid
theydidnot or didnot evenknowitwashappening. All anyonewanted wasmoney,nomatterwhat
price was paid.
Whenstock pricesbegantofall,withnorecoveryinsight,people beganaskingquestionsand
that iswhenthe truth startedto come out. When askedtoproduce the financial statements,Enron
failedorrefusedto produce theirStatementof CashFlows. The factthat Enronhad beenplayinga
numbersgame foryearsfinallycame tolightand itwas revealedthatone of the nation’soldest
accountingfirmsArthurAndersenknew of these practicesandendeduplosingeverythingaswell.The
publiclostfaithinEnronand the downwardspiral continued. Those workingforEnronendeduplosing
everythingandhadonly30 minutestovacate the buildingwhenthe time came.
KenLay and Jeff Skillingclaimedtohave noknowledge of whathadbeenhappening,butthey
were the mastermindsof itall,butAndrew Fastow wasthe one whoreceivedall the blame forworking
the books.He didwhathe wastoldto do by Lay andSkillingandwasthe one whoreceivedthe mostjail
time. Lay,Skilling,andotherswere alsoarrested,butoutof 15 arreststhere were onlysix convections.
The fall of Enronledto majorchangedwithinthe SECand otherfinancial areaswhere there is
nowa more stringentlistof checksandbalances.Thiscollapse wasalsocause forthe creationof the
Sarbanes-OxleyActwhichsaysthatpublicaccountingcompaniescannotprovidenon-auditingservices
whenauditingacompany.
Many lessonshave beenlearnedforthe collapse of Enron.New regulationshave beensetinto
place.Companieshave learnedthatgreedamountstonothing.