The Enron Collapse

3. Group Members:
 Ikram Qamar
 M. Jawad Hashmi
 M. Arslan Mirza
 Wasiq Kaleem Raja
 Farwa Nazar
 Asma Mehmood

4. Presentation On:
The Enron Collapse

5. Mission Statement:
 TO BECOME THE JACK OF ALL TRADES AND TO
BECOME A GLOBAL PLAYER

6. What You Learn From The Enron Collapse?
 Importance of cash flow.
 Importance of Accounting rules.
 Special purpose entity {SPE,s}
 Importance of Culture.
 Management effects.
 Can business succeed without Ethics?

7. Well come
To
Asma Mehmood
(Introduction of ENRON)

8. Introduction:
 Houston natural gas merge with Omaha based Internor (
large traditional gas pipeline) forming Enron corporation
in 1985.
 Enron was seventh largest company by revenue in US
and it employed 25000 people worldwide.
 Started trading in gas contracts and with the passage of
time started dealing as diversified business.

9. Overseas Expansion
 In 1992 Enron signed a contract for the Dabhol power
project in India and investment was around $3 billion.
 Enron bought energy plants in Brazil and Bolivia. In
1993 it build a gas turbine plant in England.
 In July 1998 Enron purchased $2.2 billion Wessex water
in UK.

10. The trading Operations:
 In 1989 the company entered into a joint venture with
Bankers Trust to set up a financial trading desk.
 The major innovation was the development of VPP’s in
1990, the first VPP deal was with forest oil.
 In 1994 Enron began buying and selling of electricity
after obtaining exemption from regulation as a utility
company.

11. ENRON TRAING (1996-2000)
 Enron started dealing in weather derivatives to capture
the market.
 In late 1999 Enron-online was launched creating an
electronic floor for oil and gas in US and Canada and
quickly decided to expand to other countries.
 In September 2001 Enron issued commercial papers for
liquidity purpose.

12. Pitfalls of Enron Strategies:
 At the end of 1987 Enron debt was 75% of market
capitalization.
 Projects started by Enron soon ends as the joint venture
with Bank Trust ends on 1991.
 Enron’s strategies focus on high value of activities and
less focus on capital and internal affairs.

13. Well Come
To
Farwa Nazar
(Accounting schandles)

14. Accounting Scandals
From 1990 to 2001 Enron using irregular
Accounting methods
Enron share price down from 90.56 during 2000.
Enron demise accrued after the revaluation that
much of this profit was the result of special
purpose entity.

15. Accounting scandals
 Enron filed for bank ruptancy on December 2,2001.
 The scandal is caused by ARTHUR ANDERSON which at
the time was world main accounting company.
 The company was found guilty during 2002 for
destroying documents related to the Enron Audit.
 Since SEC not allowed to accept audit from Anderson.

16. Accounting scandals
Enron used a very deceptive and fraudulent
Accounting practices.
Special purpose entity were created to
mask significant liability from Enron
financial statement.
These entities made Enron seem more
profitable but actually losing money.

17. Accounting scandals
At this time Enron share price increased.
Chief financial officer lead the team which
created the off book companies.
Mislead the investors by showing profitable
growth to increase investment but not put it
in to business and personally use this.

18. Well Come
To
Muhammad Arslan Mirza
(Audit role of Enron)

19. Audit Role in Enron
 Regarding auditing good corporate governance
requires high- quality standards for preparation and
disclosure, and independence for the external auditor.
 Enron’s external auditor was Arthur Andersen, which
also provided the firm with extensive internal auditing
and consulting services.

20. Audit role in Enron
 In the period leading up to Enron’s insolvency is
indicated by the fact that in 2000 consultancy
fees(at $27 million) accounted for more than
50% of the approximately $52 million earned by
Andersen for work on Enron.
 The history of relations between Enron and
Arthur Andersen suggests that they were
frequently characterized by tensions due to the
latter’s misgivings concerning several features of
Enron’s accounting.

21. Audit Role in Enron
 Both the Powers Committee and bodies of the
United States Senate which have investigated
Enron’s collapse have taken the view that lack of
independence linked to its multiple consultancy
roles was a crucial factor in Andersen’s failure to
fulfill its obligations as Enron’s external auditor.
 Andersen did not fulfill its professional
responsibilities in connection with its audits of
Enron’s financial statements.

22. Audit Role in Enron:
 its obligation to bring to the attention of Enron’s
Board (or the Audit and Compliance Committee)
concerns about Enron’s internal contracts over the
related party transactions

23. Well Come
To
Muhammad Jawad
Hashmi
(Ethical Problems In Enron)

24. Ethical problems
The source of Enron’s Problems
Enron started to collapse at June 2001
Used poor accounting procedures
Failed to record all assets and balance sheet
This problem was compounded thousands of time.

25. Ethical dilemma
Stockholder reports inform public about financial
information and business transaction.
Enron official did not notify public about accounting
practices.
Should Enron have informed the publicstockholders?

26. Banking issues:
Banking companies notably Citi group and J P Morgan
Chase were involved in investment banking.
The commercial banking business with Enron
The companies also go down when Enron bankruptcy

27. COPERATE ISSUES
The Enron description was practicing the accounting
fraud by :
Creating the SPS(special purpose entity
Which exchange the debt the failing investment into
sale revenue in financial statement

28. RECOMMENDATION:
1) Examine Ethical climate
2) Train the employees
3)Understand and practice company values

29. Well Come
To
Wasiq kaleem Raja
(Internal Conflicts)

30. Strategic conflicts
Enron’s strategies focus on high
value of activities and less focus
on capital and internal affairs.

31. Strategic Directions
In Enron their had been conflict over Strategic
directions.
New business started but not control it and its fail.

32. Internal conflict
Dispute among employees for higher post.
Because promotion is not linked with the hard
working and capabilities.
Every employee want to shortcut for promotion.

33. Higher management conflict
Due to higher management conflict the
trading activities do not expand and it lower
the investment rating

34. Well Come
To
Ikram Qamar
(Conclusion)

35. Importance of Cash flows
 Cash Inflow
Investors
Revenues
Debts
 Cash Out Flow
Expenses
Drawings
New businesses

36. Importance of Accounting rules:
 Financial Statements Accuracy
 Audit Reports
 Accounting rules and regulations
 Published statements.

37. Special purpose Entities
 Definition:
is a legal entity (usually a limited company of some type or,
sometimes, a limited partnership) created to fulfill narrow, specific
or temporary objectives.
Proper record maintain to check out the
Outflows and inflows from specific purpose
entity.

38. Importance of Culture
 Ethical behavior
 Corrupt environment misleading
 Supportive mind Directors
 Global Business Culture

39. Management Effects:
 Confusion among employees.
 Efficiency and cost.
 Business performance dependent.
 Operating activities.

40. Business Ethics:
 Proper Accurate Statement
 Social responsibilities of business
 Corporate governance
 Stake holders.