The Company and Scandal
One of the century’s biggest accounting scandals is the Enron Bankruptcy.
Enron was placed on Fortune 100 companies. Enron is an energy corporation whose primary business is to provide energy services to the market. Although this is their main business, the company also diverse itself to other business with respect to energy such as power plant building and maintenance. Its market value and perception to stakeholders and investor was valued highly. After several business successes, the company went into several questionable business and accounting practices that lead to its demise which also affected its auditors, Arthur Andersen.
Enron stocks value of stocks dropped from around 90$ per share on 2000 to 0.67 Cents during the scandal on 2001. This led shareholders to lose about 11 billion dollars. Due to the nature of the business, Enron also hold the largest asset lost which is about 63.4 billion dollars when it formally declared its bankruptcy.
Accounting Practice in Question
Enron showed a lot of questionable accounting practices. It violated the principles of accounting and the rules that were set in order to protect shareholders, customers and investor. Some of the malpractices that Enron performed were:
1. Enron particularly increased its revenue by declaring sales over as to what the supposedly sales values were.
2. Enron did not publish right liabilities when a subsidiary or partner fails.
3. Sales forecast was projected and was made it to be a sales revenue particularly for long term contracts.
4. In order to manage the records, certain liabilities were transferred to different entities under Enron. This technically changed the records and produce better / good number for shareholders.
5. Disregard of cost management.
Unfortunately, the scandal associated Arthur Andersen. Arthur Andersen as the auditor firm of Enron is primarily responsible in ensuring that Enron books and records...