Subject of Article
It explores the factors that caused a company like Enron to fall. Enron was the Americas 7th largest energy company situated in Huston, Texas that employed 21000 employees before it went bankrupt in mid of 2001. It was the leading natural gas, communication and electricity company with revenues of $101 billion. Besides doing the energy business it also provides the risk management services throughout the world providing online business.
It is very important to note that it has enjoyed the title of the “Americas most innovative company” for straight six years. Enron was success because of its innovative marketing and promotion campaigns of power because of its unique ability from 1996 to 2000 it was named “ America’s most innovative company” by fortune and in 2000 its was the in the list of 100 best company to work for in America”.
What Went Wrong
Kenneth lay the Enron CEO was replaced again in 2001 because Jeffery Skilling who replaces him few months ago in 2000 quit. Since then the company started deteriorating, the chief financial officer Andrew S. Fastow had hidden over $1billion in debt had developed offshore partnerships did accounting mess that was all under the notice of CEO and its believed that they both were involved in pocketing the money. The company admitted that it had inflated its profits by hiding debt because of that it lost the interest of the investors hence resulting in the massive decline in the share price leaving adverse credit rating by which Enron couldn’t recover.
Moreover Kenneth Lay betrayed its employees by showing them the false picture, he knew that company was going to be in a massive trouble but he made false statements and declared that the lowest share price were the result of a bargain. As a result the employee’s retirement savings were wiped out and employees were unable to sell their stock because Enron disclosed as “management change”. Andersen, Enron accountant knew all about the company well but did not disclose it until the company collapsed. Ken Lay Quit as Enron CEO on January 23, 2002.
Role of Accountant
It is clear that the accountants are the medium of transparency which gives the investors the sense of confidence and guidance to further invest in a specific company but in the case of the Enron the Accountant played a negative role. Andersen formally known as Arthur Andersen and Enron were involved in forging the documents up to January 2002. With the proceeding of investigation it was known that the David Duncan executive of Andersen and Kenneth Lay were involved in sharing the millions of dollars of Enron. David Duncan was fired by Andersen following this story.
Who should be blamed?
Dick Cheney: As he had contacts with Enron Administration and favored Enron while drafting the bill on Energy Policy and always facilitated Enron. Moreover he has never discussed about his 6 meetings with Enron officials.
Kenneth Lay: Why did Kenneth Lay encouraged its employee not to sell their stocks and provided the wrong information that declining share price is the result of bargain, he told the media afterwards even know that company is in trouble that its company’s share value will touch to $120 in few days but in months it stopped at $.60 per share Why did Kenneth Lay put a ban on its Employee for selling their stocks for weeks. Kenneth lay also wrote letter to one of the top officials of Federal Energy Regulating Commission that if he changes his view on the deregulating policy of energy only then he may continue his office, but he refused and was fired.
Andersen: Why did Andersen did not expose the Enron true condition besides enjoying the huge money by shredder documents.
Robert Robin: Former Treasury Secretary used his connections so that Enron should not be downgraded in its credit listing because Citi Group had loaned $800 million to Enron. Robert tried his best to avoid Enron to collapse because at that time he was top official at Citi group.
The Collapse
The Enron’s reputation was shattered as a result of bribery, using political pressure to gain the favor of the interest as it did in India Power Project and pressurized Bolivia to build the controversial gas pipeline in the worlds only dry forest. Moreover, it also seeks illegal practices for their contracts in Central and South America, Philippines and Africa. After the revelation of the fraud and illegal auditing practices by Andersen the company was at the verge of undergoing the world’s biggest bankruptcy. The Enron’s plunge occurred when it was revealed that it’s much of the profits were results of the deals with the SPE’s (special purpose entities which were controlled by it) and the losses which Enron beard were not reported in its Financial Statements. Enron’s shares which were speculated touch $120 from $90 stood to $0.30 by the end of 2001.
Thousands of Enron Employees who have lost their life savings serving the biggest company has filed case against the administration and officials that includes 29 executives including chief accounting officer. Mr. Brexter the former Enron Executive was fund dead in his abandoned car in a suburb. The Enron Bankruptcy has lead the way for the strong check over the companies so they may not involve in such illegal practices in this regard congress has drafted Sarbanes – Oxley Act to make sure that such wrongdoings are not followed in future and transparency is maintained.
Works Cited
Thomas, C. William. “The Rise and fall of Enron; When a Company Looks Too Good to Be True, It Usually Is.” Journal of Accountancy 193.4 (2002): 41+.