Enron: Restated Earnings of a Company
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Choose any recent article on an accounting scandal (such as Enron, Worldcom, etc....) or an article on a company that recently restated earnings or a company that declared that under the basis of the SOX evaluation the internal controls were not operating effectively.
Requirements:
1. Indicate the source of your research
2. Simply summarize the basic facts that were discussed in the article.
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Solution Summary
This solution uses Enron as the case study of an accounting scandal and it discusses the background information of the company, the financial signals, analysis of penalties on the company, timeline of events, and Enron's attempts to make reparations. All references used are included.
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Note: The articles referred are given at the end
Enron was founded on January 1, 1985 with the merger of Houston Natural Gas (Houston, TX) and InterNorth (Omaha, NE), and became the nation's largest gas pipeline system with a network of more than 34,000 miles. The company was at a compound annual rate of more than 60 percent from 1995 through 2000. The highest and amazing growth came in 2000, which its revenues increased from $40 billion in 1999 to over $100 billion just a year later. At the time it filed for bankruptcy on December 2, 2001, it was
considered the seventh largest publicly traded corporation in the United States.
Financial signals
Enron had created offshore entities, a unit which may be used for planning and avoidance of taxes, raising the profitability of a business. This provided ownership and management with full freedom of currency movement, and full anonymity, which would hide losses that the company was taking. These entities made Enron look more profitable than it actually was, and created a dangerous spiral in which each quarter, corporate officers would have to perform more and more contorted financial wizardry to create the illusion of billions in profits while the company was actually bleeding cash. These obligations were "contingent liabilities related to unconsolidated off-balance sheet special purpose entities SPEs substantial liabilities appeared on the balance sheet as "liabilities from risk management activities." (Grazian).
Infact the executives like Cindy Olson and insiders at Enron knew about the offshore accounts that were hiding losses for the company, however, the investors knew nothing of this. Chief Financial Officer Andrew Fastow led the team which created the off-books companies, and manipulated the deals to provide himself, his family ...
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