Enron Accounting Scandal and Its Impact To Stakeholders Voice Over (Pictures or Videos of Enron C/O Youtube)

PALATAN, Randell Jan M.
BSA35 Operations Auditing Final Requirement

BSA-III-A31A Mr. Clyde dela Fuente December 5, 2020
ENRON ACCOUNTING SCANDAL AND ITS IMPACT TO STAKEHOLDERS

Voice Over (Pictures or Videos of Enron c/o YouTube)
Who would've thought that Enron, a Wall Street darling Energy Giant would become
what would be known as the biggest fraud scandal in US corporate history?
My Footage
You see, when the US government deregulated energy monopolies, Enron transformed
these energy supplies into financial instruments that could be traded online like stocks and
bonds. And it worked. So, Enron thought that if they could trade energy, why not trade all kinds
of things such as insurance and turn them into derivatives too. Unfortunately, while they won on
energy, some of their other ventures didn't pan out as planned.
This doesn’t bode well for the company image. If investors saw their losses, their stocks
would plummet. So, they committed fraud in the form of creating imaginary revenues.

Enron manipulated its accounts and reported false trading revenues to make it look like
there was still money coming in.
Sometimes, Enron’s banks set up companies, many of them off shore. Enron then sold
them gas, oil or other products to be delivered in the distant future but for which they paid
immediately. There was never any intention to actually deliver the gas. It was simply a loan
arranged so that Enron could declare it as a profit instead of a debt. The company later sold the
gas back to Enron so that the loan was repaid.
Once, Enron made a deal with Blockbuster, a video renting business, to go online but in 8
months, it totally flopped. Meanwhile, they also made a deal with a Canadian bank to lend them
$115 Million and in return, they will give them the profit from the Blockbuster deal for 10 years.
But we all know what happened to that. Yet, Enron recorded this as a revenue and not a loss.
My Footage
The most innovative company in America is losing and they hid all of their losses using
something called mark-to-market accounting. Investopedia explains that this technique measures
the value of a security based on its current market value instead of its book value.
PALATAN, Randell Jan M. BSA35 Operations Auditing Final Requirement
In 2000, it was revealed that Enron had losses of about $591 million and debts amounting
to $628 million. In desperation Enron tried to sell itself to its largest rival Dynegy. The financial
institutions who knew what was happening jumped at this life line. Enron's share price was
falling so rapidly that it had to renegotiate the sale. It did not disclose its true situation to
Dynegy. When Dynegy realized what was happening it walked away. In December 2001, Enron
filed for bankruptcy. It took them 10 years to reach the top and less than 10 months to hit bottom.
A lot of their stakeholders, especially the poor clinging to their company stock for their
pensions, loss everything. From 2004 to 2011, Enron paid $21.7 billion to its creditors. It's said
shareholders lost in total around $74 billion and employees lost billions in pension benefits.
GOVERNMENT ACTION
My Footage
In April 2001, analysts began sniffing around Enron's magical records and found out
about their fraud cover up.
The collapse of Enron triggered a multitude of investigations by state and federal
agencies across the USA, as well as an avalanche of court actions by investors.
The US Securities and Exchange Commission investigated, prosecuted and fined some
executives but it is not clear how many directors were charged. It is exceptional for real
corporate criminals to be imprisoned.
To date, the SEC has uncovered several instances of financial fraud committed by high-
ranking executives at Enron. Many of the executives have been charged with wire fraud, money
laundering, securities fraud, mail fraud, and conspiracy.

Kenneth Lay, the founder and first fraud mastermind of Enron died before facing the
charges.
Andrew Fastow, the former CFO of Enron was indicted on 78 counts of securities fraud,
money laundering, wire and mail fraud, as well as conspiracy to inflate Enron's profit.
J. Clifford Baxter, former Vice Chairman of Enron, accused of securities fraud,
committed suicide in January 2002.
Arthur Anderson, the accounting firm that was responsible for auditing Enron was found
guilty of obstruction of justice for shredding documents related to the Enron scandal.
Jeffrey Skilling, CEO of Enron during the fraud, was released from prison last year.
PALATAN, Randell Jan M. BSA35 Operations Auditing Final Requirement
My Footage
Enron's collapse and the financial havoc it wreaked on its shareholders and employees led
to new regulations and legislation to promote the accuracy of financial reporting for publicly
held companies. In July 2002, President George W. Bush signed into law the Sarbanes-Oxley
Act. The Act heightened the consequences for destroying, altering, or fabricating financial
statements and for trying to defraud shareholders.
The Enron scandal resulted in other new compliance measures. Additionally, the
Financial Accounting Standards Board (FASB) substantially raised its levels of ethical conduct.
Moreover, company boards of directors became more independent, monitoring the audit
mechanisms to spot and close loopholes that companies have used to avoid accountability.
In a sense, the Enron scandal improved the audit and accounting system we know.
Segal, T (2020) Enron Scandal: The Fall of a Wall Street Darling, Retrieved from
https://www.investopedia.com/updates/enron-scandal-summary/
(2020) Structured Finance The Enron Debacle. Retrieved from
https://documents.uow.edu.au/~/bmartin/dissent/documents/health/citienron.html#CONTENTS
Company Man (2017) The Enron Scandal – A Simple Overview. Retrieved from
https://www.youtube.com/watch?v=hwollZoVmUc
Cold Fusion (2019) Enron – The Biggest Fraud in History. Retrieved from
https://www.youtube.com/watch?v=e5qC1YGRMKI

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PALATAN, Randell Jan M.

BSA35 Operations Auditing Final Requirement

ENRON ACCOUNTING SCANDAL AND ITS IMPACT TO STAKEHOLDERS

Voice Over (Pictures or Videos of Enron c/o YouTube)

Voice Over (Pictures or Videos of Enron c/o YouTube)

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