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    Enron Scam: The Wall Street Shiver's

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    Vishal Chavan
    The document summarizes the Enron scam, which involved fraudulent accounting practices that ultimately led to the bankruptcy of the Enron Corporation in 2001. Some of the key accounting issues included improperly using mark-to-market accounting to inflate earnings, hiding debt through the use of special purpose entities, and financial auditors destroying documents to cover up negligence. The scandal shook investor trust and demonstrated how loopholes in accounting standards could be exploited, resulting in Enron's stock price collapsing from $83 to $0.61.

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    Enron Scam: The Wall Street Shiver's

    Uploaded by

    Vishal Chavan
    83 views12 pages
    The document summarizes the Enron scam, which involved fraudulent accounting practices that ultimately led to the bankruptcy of the Enron Corporation in 2001. Some of the key accounting issues included improperly using mark-to-market accounting to inflate earnings, hiding debt through the use of special purpose entities, and financial auditors destroying documents to cover up negligence. The scandal shook investor trust and demonstrated how loopholes in accounting standards could be exploited, resulting in Enron's stock price collapsing from $83 to $0.61.

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    ENRON

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    The document summarizes the Enron scam, which involved fraudulent accounting practices that ultimately led to the bankruptcy of the Enron Corporation in 2001. Some of the key accounting issues included improperly using mark-to-market accounting to inflate earnings, hiding debt through the use of special purpose entities, and financial auditors destroying documents to cover up negligence. The scandal shook investor trust and demonstrated how loopholes in accounting standards could be exploited, resulting in Enron's stock price collapsing from $83 to $0.61.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    83 views12 pages

    Enron Scam: The Wall Street Shiver's

    Uploaded by

    Vishal Chavan
    The document summarizes the Enron scam, which involved fraudulent accounting practices that ultimately led to the bankruptcy of the Enron Corporation in 2001. Some of the key accounting issues included improperly using mark-to-market accounting to inflate earnings, hiding debt through the use of special purpose entities, and financial auditors destroying documents to cover up negligence. The scandal shook investor trust and demonstrated how loopholes in accounting standards could be exploited, resulting in Enron's stock price collapsing from $83 to $0.61.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 12

    ENRON SCAM

    The Wall street shiver’s


    Presented by,
    SWAPNIL REDEKAR (29)
    Introduction
    Stakeholders expectation from corporate world

    Loss of Global trust

    Reason for committing frauds

    Enron scam
    High Lights
     Rise of Enron

     Causes of Downfall
    Revenue Recognition Method
    Mark-to-market accounting
     Special purpose entities
     Financial Audit
     Other Accounting issues

     Timeline of downfall
    Rise of Enron
     In 1985, Mr. Kenneth merged the natural gas pipeline
    companies of Houston Natural Gas and InterNorth to form
    Enron
     Selling of Electricity at market price
     United States Congress passed legislation deregulating the

    sale of Natural gas


     By 1992,EBIT of $122 million
     Diversification of Business
     By December 31, 2000, Enron’s stock was priced at $83.13

    and its market capitalization exceeded $60 billion, 70 times


    earnings and six times book value
    Business Ethics and Corporate
    Governance 2/7/2011 4
    Fall of Empire…………

    Revenue Recognition Method


     Enron – a major service provider
     Merchants are allowed to use “merchant model” in order to
    compensate for risk
     Whereas, service providers are required to use “agent model”
     Enron, being service provider used “merchant model” and
    inflated their earnings
     Between 1996 to 2000, Enron's revenues increased by more than
    750%, rising from $13.3 billion in 1996 to $100.8 billion in 2000
    (average 65%)
     Placed the company at the sixth position on the Fortune Global
    500
    2/7/2011 Business Ethics and Corporate Governance 5
    Fall of Empire…………
    Mark-to-market accounting
     Mr. Skilling emphasized to adopt this method citing that it
    will reflect “true economic value”
     Enron became the first non-financial company to use the
    method to account for its complex long-term contracts
     Once a long-term contract was signed, income was
    estimated as the present value of net future cash flows
     Often, the viability of these contracts and their related costs
    were difficult to judge
     Again this inflated earnings, which was just a projection of
    a would be realized thing
     Enron
    2/7/2011 – Blockbuster contract
    Business Ethics and Corporate of 20 years
    Governance 6
    Fall of Empire…………
    Special purpose entities
     Enron used special purpose entities—limited
    partnerships or companies created to fulfill a temporary
    or specific purpose
     Funded by independent equity investors and debt
    financing
     Enron had used hundreds of special purpose entities to
    hide its debt
     Enron's balance sheet understated its liabilities and
    overstated its equity, and its earnings were overstated
    2/7/2011 Business Ethics and Corporate Governance 7
    Fall of Empire…………
    Financial Audit
     Enron hired numerous Certified Public Accountant, looked for new
    ways to save the company money, including capitalizing on loopholes
    found in Generally Accepted Accounting Principles, the accounting
    industry's standards

     Enron would occasionally allow accounting firms Ernst & Young or


    PricewaterhouseCoopers to complete accounting tasks to create the
    illusion of hiring a new firm to replace Andersen

     When news of Securities Exchange Commission investigations of


    Enron were made public, Andersen attempted to cover up any
    negligence in its audit by shredding several tons of supporting
    documents
    2/7/2011
    and deleting nearly 30,000 e-mails and computer files.
    Business Ethics and Corporate Governance
    8
    Fall of Empire…………
    Other Accounting issues
     “SnowBall” Method

     Employees were asked to even pretend to work hard


    in case of inspection done by Securities Exchange
    Commission

    2/7/2011 Business Ethics and Corporate Governance 9


    HISTORY@ ENRON, UNITED STATES
     The Enron scam, revealed in October 2001, eventually
    led to the bankruptcy of the Enron Corporation

     Enron's credit rating fell to junk status

     The company was left with little cash to run its business

     Stock price fell to $0.61 in December 2002

     One editorial observer wrote that "Enron is now 10

    shorthand for the perfect financial storm"


    2/7/2011 Source : Business
    Balanced score card Institute
    Ethics and Corporate 11
    Governance
    Thank You

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