Enron
Enron Case Analysis
Summary of relevant facts
The Enron case is one of the biggest scandals in US history. The company was over-stating and understating its assets and losses respectively in its annual financial statements. The company's executives found a creative way to hide losses by using aggressive accounting decisions for large and complex transactions involving Enron and limited partnerships created by Enron. These partnerships were referred to as SPEs (Special Purpose Entities). Enron was also selling assets at grossly inflated prices to their SPEs, allowing the company to manufacture large gains on the financial statements. One of Enron's largest so called SPE that was very suspicious was the LJM subsidiary owned by Enron's CFO, Andrew Fastow. Enron was basically doing business with itself, which is a related party transaction. Enron did not provide all the significant transactions regarding its SPEs on its financial statement. Enron's accounting policies were basically too complex for anyone to understand, even the auditors (Arthur Andersen) and the analysts claim that Enron's accounting policies and reporting of transactions were blurry. Enron was also overstating its revenue from its internet-based operations. At the time Enron was reporting large gains on the company's online segment, its competitors were reporting losses. Enron looked like the "shinning star" in the midst of its competitors. Enron's stock soared drastically and the executives began making big bucks. Enron's executives succeeded in deceiving the whole nation that the company was making a profit and that Enron was the nation's seventh largest public company. Enron was doing all kinds of illegal and unethical activities; they were hoarding energy and creating fake scarcities especially in the city of California.
The business culture at Enron was also not pleasant. Enron was a bit too aggressive. Employees were stepping on each other's toes to gain...
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