Enron's Accounting Fraud

 Enron’s Accounting Fraud Dissertation

Economic Accounting

Job: ENRON's Accounting Fraud

MBA (2011-2013)

1/3/2012

Submitted To: M Jameel

Submitted By simply: Maliha Aziz Butt

ENRON's ACCOUNTING SCANDAL

INTRODUCTION:

Northern Gas Company (the ancestor of ENRON) was established in 1930. In 1979, Inter North Inc. bought North Natural Gas Firm and put it under a new management. Inside the 1980s, the United States Congress passed laws deregulating the sale of natural gas.  At the beginning of the nineties, Congress handed a similar laws targeted at the sales of electricity. These steps launched a fresh era inside the energy industry, allowing businesses like ENRON to grow. In 85, Kenneth Place, CEO of Houston Natural Gas created a new company and changed Inter North's name to ENRON Corporation. This new company was at first involved in distributing gas and electric power in the US and in selling power plants and pipelines around the world. However , the corporation started to deviate into various non-energy-related fields i. at the. non-core businesses, such as weather derivatives – weather condition insurances pertaining to seasonal organization, risk management, and internet band width. Even though ENRON's core organization remained gas and electrical energy, most of the organization growth came from those non-core businesses. ENRON was mixed up in following bogus activities:

1 ) Fraud to Shareholders

installment payments on your Fraudulent Accounting Practices

several. Creating off Balance Sheet Agencies to Cover-up Losses four. Fake Strength Crisis

your five. Deregulation of ENRON

Scams to Shareholders:

When the workers of a firm deliberately deceive the company's investors by misrepresenting information. ENRON was involved in the phenomenon known as " make the books”, companies prepare the books when they avoid tell us all their real earnings. Managers make the catalogs and present us fake earnings to enhance their income per share (EPS) of stocks.  Companies cook the books because they have the pressure to provide good earnings in order to attract investors to invest in them and the most importantly to hold current buyers happy. Simply by misrepresenting income reports, the executives of ENRON abused funds described from opportunities while confirming fraudulent earnings to the investors; this not only proliferated more opportunities from current stockholders, yet also drawn new investors desiring the enjoy the apparent financial gains enjoyed by ENRON company. Since, Professional bonuses happen to be tied to the company's earnings so managers will be tempted to manipulate company's revenue to receive these large revenue. During 2001, ENRON shares fell from US$ eighty five to US$ 0. 31. The result of this accounting scandal was that many of the losses that ENRON found were not reported in its economical statements.

Fraudulent Accounting Methods:

The ENRON fraud caseВ was extremely sophisticated. The roots for the ENRON scandal lie in the beginning of the 1990s. In fact , in 1992, Rob Skilling, who had been theВ president of ENRON's trading operations, persuaded federal regulators to allow ENRON to use market-based accounting. В Companies can use market-based accounting unethically i-e one party purposely misinforms an additional party through the trading of stocks, bonds, and other securities, which is what ENRON performed. ENRON employed market-based accounting for its strength segment inВ the 1990s and used it too much for its trading transactions. Underneath this accounting rule, once companies include outstanding deals or energy-related contractsВ on their particular balance linens at the end of any quarter, they need to appraise them using reasonable value and record unrealized gains and losses to the quarterly income statement. The thing is that there are no quoted pricesВ upon which to base valuations forВ long-term long term contracts in commodities just like gas. Using market-based accounting allowed ENRON to count projected earnings from long-term energy legal agreements as current income. All those contracts symbolized money which may notВ be collected for many...


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