Enron Accounting Scandal

1425 Words 6 Pages
When discussing two of the world’s major accounting scandals, it’s important to first define what a “scandal” is. The most applicable definition is as follows: “an action or event regarded as morally or legally wrong and causing general public outrage.” Enron and WorldCom have certainly caused public outrage through their illegal, immoral, and unethical actions. While each scandal is in itself an expansive episode, they each have similarities and have both impacted the industry in ways that were far unseen by each company.
So, who are Enron and WorldCom anyway? Enron was the largest marketer of natural gas and electricity. Based out of Houston, Texas Enron was in control of a massive natural gas transmission network – over 36,000 miles at
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Chief Financial Officer, Scott Sullivan, resigned after the exposition of $3.8 billion dollars of “capital expense” were misplaced and improperly accounted for over five quarters. Because they were not listed correctly, the earnings results were inaccurate and the company could delay applying the expense against the earnings for many years (showing a higher profit over a longer period of time) (Associated Press, 1). The scandal was blamed on accounting “irregularities” which involved capital expenditures and expenses. These “irregularities” inflated their cash flows and included transfers between internal accounts. This does not fall within the Generally Accepted Accounting Principles (G.A.A.P) as it’s unethical and illegal. They moved about $3.06 billion dollars in 2001, and about $800 million the quarter after (2002). Involved in this scandal was an audit company titled “Anderson”. They were, not shockingly, also involved in the Enron scandal. This forced them to create distance from WorldCom, but it also took them under in addition to Enron and WorldCom (Hancock, 1). After investigation, it was discovered that about $11 billion dollars were misstated in the accounting books (Ashraf, 1). Much like Enron, this forced them to file for bankruptcy and at the time, they filed for the largest bankruptcy in United States history. They filed for about $107 billion in assets, while Enron …show more content…
Well, to start, many employees in both companies lost their jobs initially or just months later. Starting with Enron, about 4,000 employees were laid off. Not only did these people lose their only source of steady income, they also lost (along with shareholders) about $74 billion dollars in company stock and equity. They also lost retirements, benefits, healthcare, you name it. WorldCom was just as severe, laying off about 17,000 employees (of about 85,000). That’s about 20% of their workforce – and this was just the initial cut (before they owned up to their mistakes). Eventually, a loss of 30,000 jobs was incurred. This left America’s economy feeling hopeless, and increased the unemployment rate substantially. In addition to the employees, stakeholders and investors lost enormous sums of

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