Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded in 1985 as a merger between Houston Natural Gas and InterNorth. Enron employed approximately 30,000 staff and was a major electricity, natural gas, communications and pulp and paper company, with claimed revenues of nearly $101 billion during 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001, it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal".

2. Emran Hosain
Id. No: M18150203721

3. Enron
A Fundamental Case Study

4. Introduction (Enron Co.)
Enron Corporation was an American energy, commodities, and services
company based in Houston, Texas. It was founded in 1985 as a merger
between Houston Natural Gas and InterNorth. Enron employed
approximately 30,000 staff and was a major electricity, natural gas,
communications and pulp and paper company, with claimed revenues of
nearly $101 billion during 2000.
Fortune named Enron "America's Most Innovative Company" for six
consecutive years. (1995-2000)

5. Water & wastewater
Pulp & paper
Electricity
Broadband
Oil
Gas & LNG
Enron’s Line of Products

6. At the end of 2001, it was revealed that its reported financial
condition was sustained substantially by institutionalized, systematic,
and creatively planned accounting fraud, known as the "Enron
scandal".
On December 2, 2001, the Enron Corporation files for Chapter 11
bankruptcy protection in a New York court.
Enron Scandal

7. Top 8 Bankruptcy in World History

8. Behind Enron Scandal
Key Persons
Kenneth Lee Lay
Founder, CEO &
Chairman
Jeffrey Skilling
President & CEO
Andrew Fastow
CFO
October, 2001

9. Richard Causey
EVP & CAO
Lawrence Greg Whalley
President & COO
Jeffrey McMahon
MD & CFO.
Robert Bennett
Attorney Representative
of Enron in Washington
Joseph Berardino
CEO of Aurther Andersen
Audit.

10. Rechard Causey
Head of the Audit
Committee
Mark Frevert
Vice Chairman
There are more, who were directly and indirectly involve
in Enron Scandal.

11. Reasons Behind Enron Scandal
1. Mark-to-Market Valuation,
2. Investments in Special Purpose Vehicles / Entities (SPV or SPE),
3. Failure of Audit Committee,
4. Force Ranking Distribution Scheme,
5. Executive Compensation,
6. Securities Analyses Issue.

12. Md. Monurul Islam
Id. No: M18150203726

13. 1. Mark-to-Market Valuation
Under Mark-To-Market accounting, assets can be recorded on a
company’s balance sheet at their fair market value as opposed to their
book values. With MTM, companies can also list their profits as
projections, rather than actual numbers.
Enron manipulated this method, since MTM is not based on "actual" cost
but on "fair value," which is harder to pin down.
Fair values are hard to determine, and even Enron CEO Jeff Skilling
found it difficult to explain to financial reporters where all the numbers
on the company’s financial statements came from.

14. 2. Investments in Special Purpose
Vehicles / Entities (SPV or SPE)
 To minimize financial statement losses & volatility,
 To accelerate profit
 To avoid adding debt
A special purpose vehicle, also called a special purpose entity (SPE), is a
subsidiary created by a parent company to isolate financial risk. Enron
sponsored hundreds of SPEs with which it did business. Many of these were
used to shelter foreign-derived income from US taxes.
Its primary motivation was –

15. Investments in Special Purpose Vehicles / Entities
(SPV or SPE)
SPV or SPE
Andrew Fastow
CFO
Enron
Stocks
Debt
Investors
Equity
Investors
Money
& Note
Guarantee of Enron Stock
value
Obligation to
Repay
HedgeofthevalueofEnronInvestment
Principal

16. Abdul Baki
Id. No: M18150203735

17. 3. Failure The Board & The Audit
Committee
Enron’s audit committee appeared to be ineffective in preventing Enron’s
collapse. Of the six people on the audit committee, the independence of two
members was questionable.
 John Wakeham received annual fees of $72,000 in relation to
consultancy advice to Enron’s European operations.
 John Mendelsohn was president of a University of Texas medical centre
which had received $1.6 million from Enron.
The chair of the audit committee, Robert Jaedicke who sold Enron stock
between January 2000 and October 2001 worth over $800,000.

18. Enron’s Auditor: Aurther Andersen
 Andersen's auditors were pressured by Enron's management to defer
recognizing the charges from the special purpose entities.
 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.
 Though Andersen has a strong control over conflict of interest, it failed
in case of Enron.

19. o More commonly known as rank and yank system.
o This system is widely-used, but remains controversial due to the
competition it creates, and also the reality that not all employees will fit
neatly into one of the three categories and might end up in a category
that does not reflect their true performance.
4. Force Ranking Distribution Scheme

20. 5. Executives Compensation
Apart from their salaries, Enron executives received substantial benefits.
In 2001 the compensation committee gave approval to plans to award
65 executives a total of $750 million for their work in 2000, which
compared with Enron’s net income in that year of $975 million.

21. Sadia Sultana
Id. No: M18150203748

22. 6. Security Analyses Issue
Securities analysts employed by investment banks provide research and
make “buy,” “sell,” or “hold” recommendations for the use of their sales
staffs and their investor clients.
For Personal benefit, some Enron’s executive sell share between January
2000 to October 2001 -
0 50 100 150 200
KENNETH LAY
ANDREW FASTOW
JEFFREY SKILLING
RICHARD CAUSEY
JEFF MCMAHAN
183
33
70
13
2
Million USD

23. Share price of Enron Co. (Dec 1991- Dec 2001)

24. Consequences of the Enron Scandal
 4500 employees lost their jobs.
 Investors lost some 60 billion dollars within a few days; for many it meant
losing their old-age security.
 The pension fund for the company's employees was obliterated.
 Losses on the financial market amounted to the worst stock value loss in
peaceful times.
 The auditing firm Arthur Anderson lost its accreditation.
 The close ties of the company's founder, Kenneth Lay, to US President
George W. Bush – Lay was an important financial supporter of Bush – came
under sharp criticism.

25. Sukanta Roy
Id. No: M18150203738

26. Recommendations
 Established well-designed and enforced legislation defines positive and negative
incentives, to encourage behavior that strengthens the fair and efficient
operation of the marketplace.
 Personal integrity, good judgment and other essential qualities cannot be
prescribed by law, but must be embedded in managers.
 the majority of the board should not have any material relationship with the
company;
 The audit committee must have sole responsibility for hiring the audit firm;
 nominating and compensation committees must consist entirely of independent
directors;

27. Conclusion
Enron was a massive failure, because of its size of bankruptcy, complexity,
control to protect the integrity of capital market failed, and especially
because of the massive greed and collusion of key participants. This multiple
failure sent a signal of management structure. This made the corporate
authorities to realize the importance of ethics and international control in
business.

28. Thank you
Everyone