Enron Case Study

1860 Words 8 Pages
Register to read the introduction… They moved to trading derivatives – in 2000, Enron's derivatives-related assets increased from $2.2 billion to $12 billion. They had deals in areas such as weather derivatives, water services, metal trading, broadband supply and power plant. Soon enough, Enron had more contracts than any of its competitors and could predict future prices with great accuracy. Enron seemed to always have steady, high profits. Behind the scenes, however, there was much more to it.
Starting with the Vahalla scandal, the board learned that Louis Borget and Tom Mastroeni were gambling beyond their limits, destroying trading reports, keeping two sets of books and manipulating accounting in order to give the appearance that Vahalla was earning steady profits. The board did not fire the Vahalla executives, instead, the message to Borget and Mastroeni was "please keep making us millions," (20). Borget and Mastreoni later ended up on the wrong side of an immense trade, totaling $1 billion in losses. Although Enron executive Mike Muckelroy reduced this loss to $140 million, Enron
…show more content…
To run this energy market, Skilling wanted more than conventional accounting – "under conventional accounting, you book the revenues and profits that flow from the contract as they come through the door," (39). He wanted to use mark-to-market accounting, where "[they] can book the entire estimated value for all ten years on the day you sign the contract," (39). The SEC approved this accounting style, also known as hypothetical future value accounting, without fully predicting the implications. Under this accounting standard, no matter how much cash came in the door, Enron's profits could be whatever they wanted them to be. This left the door open to unethical behavior, and this is where greed and dishonesty started to come into play. Skilling believed that human nature is steered by greed and competition; it is no wonder why this accounting standard was taken advantage of. Enron had gas operations all over the world that had cost billions to build, and most …show more content…
However, I believe that increased government intervention is the core necessity to preventing scandals like Enron from happening in the future. The Sarbanes-Oxly Act of 2002 did, in fact, implement certain laws (410). The act is arranged into eleven titles, including the following: imposing hefty penalties for destroying, mutilating, concealing or falsifying records; issuers are required to disclose to the public any change in operations; officers must sign that they have reviewed financial reports, holding them responsible under any circumstance – this section will prevent the action such as Lay putting the all of the blame on Fastow for the financial statement manipulations. However, I believe that accounting firms, law firms, investment banks, and any entities that the company pays fees to should be documented and publicly available. I believe these documents should entail the executives and employees in charge of auditing, representing, investing and in general, dealing with a company. They should also detail the operations and

Related Documents

Related Topics