MIDDLE EAST TECHNICAL UNIVERSITY
FACULTY OF ECONOMIC
AND
ADMINISTRATIVE SCIENCES
DEPARTMENT OF ECONOMICS ECON 433
THE RISE AND THE FALL OF ENRON CORP.
BERKEHAN KAYA
1917350
Introduction
Enron Corporation was the corporation which had the largest natural gas transmission networks in North America continent. In 2000, the company was on the Fortune 500 list with the seventh seat, but its bankruptcy in December 2001 was even larger. The name of the company, then, displayed whenever the subject is corporate greed and corruption. Its collapse costed employees and investors, and the figure of the costs reached over $70 billion because of the lost retirement pensions and lost capitalization.
The Creation
Enron took shape by the merger …show more content…
There was a consultant named Skilling mentioned in the previous chapter, the one invented the Gas Bank, and then worked in Enron. After he came to Enron, the trading operation adopted mark to market accounting. That means that the revenues and expenses were accounted to the balance sheets as soon as the contracts have been signed. Contracts were obviously long term, and the credited revenues were expected revenues and the debited expenses were the expected costs of fulfilling the contract. Although the mark to market accounting practice even now has its value among the widely accepted accounting practices, Enron and its auditor Arthur Anderson took it to the next level. The stock prices rose by 56 % and 87 % in 1999 and 2000, respectively. As was the case in broadband business, Enron was losing money on most of its operations, but at the same time it looked like stable and profitable in those years. Enron also heavily made prepaid agreements. This practice enables the firms raising money without showing it in the liability section. In 2001, Enron signed over $5 billion worth of prepaid …show more content…
This new law required more transparency from the firms in the dealings between the executives and corporations, provided heavier penalties in response to a fraud and made corporate officers personally liable for their financial reports.
As a result, many Enron executives were convicted guilty for their criminal acts. Skilling (24 years) was one of them. Arthur Anderson was found guilty of fraud, and some partners who worked with Enron were convicted (Frountain, 2017).
The Cold Result
As the Enron bankrupted, the employees lost their savings and their pensions. There were employee invested funds for the employees, but the resources of funds were indexed to the stock prices of the company. Since the stocks of the Enron was deemed worthless, there was no security for the employee funds.
In 2004, they changed its name to Enron Creditors Recovery Corporation for the sole purpose of selling all the assets for the creditors. After everything was sold, the company would no longer exist (Frountain,
FACULTY OF ECONOMIC
AND
ADMINISTRATIVE SCIENCES
DEPARTMENT OF ECONOMICS ECON 433
THE RISE AND THE FALL OF ENRON CORP.
BERKEHAN KAYA
1917350
Introduction
Enron Corporation was the corporation which had the largest natural gas transmission networks in North America continent. In 2000, the company was on the Fortune 500 list with the seventh seat, but its bankruptcy in December 2001 was even larger. The name of the company, then, displayed whenever the subject is corporate greed and corruption. Its collapse costed employees and investors, and the figure of the costs reached over $70 billion because of the lost retirement pensions and lost capitalization.
The Creation
Enron took shape by the merger …show more content…
There was a consultant named Skilling mentioned in the previous chapter, the one invented the Gas Bank, and then worked in Enron. After he came to Enron, the trading operation adopted mark to market accounting. That means that the revenues and expenses were accounted to the balance sheets as soon as the contracts have been signed. Contracts were obviously long term, and the credited revenues were expected revenues and the debited expenses were the expected costs of fulfilling the contract. Although the mark to market accounting practice even now has its value among the widely accepted accounting practices, Enron and its auditor Arthur Anderson took it to the next level. The stock prices rose by 56 % and 87 % in 1999 and 2000, respectively. As was the case in broadband business, Enron was losing money on most of its operations, but at the same time it looked like stable and profitable in those years. Enron also heavily made prepaid agreements. This practice enables the firms raising money without showing it in the liability section. In 2001, Enron signed over $5 billion worth of prepaid …show more content…
This new law required more transparency from the firms in the dealings between the executives and corporations, provided heavier penalties in response to a fraud and made corporate officers personally liable for their financial reports.
As a result, many Enron executives were convicted guilty for their criminal acts. Skilling (24 years) was one of them. Arthur Anderson was found guilty of fraud, and some partners who worked with Enron were convicted (Frountain, 2017).
The Cold Result
As the Enron bankrupted, the employees lost their savings and their pensions. There were employee invested funds for the employees, but the resources of funds were indexed to the stock prices of the company. Since the stocks of the Enron was deemed worthless, there was no security for the employee funds.
In 2004, they changed its name to Enron Creditors Recovery Corporation for the sole purpose of selling all the assets for the creditors. After everything was sold, the company would no longer exist (Frountain,