Enron Corporation
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THE COMPANY
Enron Corporation was an American energy, commodities, and Services Company based in Houston, Texas.
One of the worlds leading electricity, natural gas, communications, and pulp and paper companies
Employed approximately 22,000 staff
Enrons reported annual revenues grew from under $10 billion in the early 1990s to $101 billion in 2000, ranking it seventh on the Fortune 500
Enron had grown into a major energy trading company whose assets had at one point been estimated at $100 billion.
Fortune named Enron “Americas Most Innovative Company” for six consecutive years
In February 2001, Fortune magazines ranking of Americas most admired companies listed Enron as No. 1 for “innovativeness” and No. 2 for “quality of management.”
The firm was widely regarded as one of the most innovative, fastest growing, and best managed businesses in the United States.
Enron traded in more than 30 different products, including the following:
Products traded on Enron Online
Oil and LNG transportation
Broadband
Principal investments
Risk management for commodities
Shipping / freight
Streaming media
Water and wastewater
Extensive futures trader, including sugar, coffee, grains, hog, and other meat futures.
THE PROBLEM
Bad accounting practices (use of fraud)
They use complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities
Enron used many manipulative accounting practices
They used financial engineering as a kind of plastic surgery, to make it look better than it really was.
The company used accounting techniques involving unconsolidated partnerships and “special purpose entities” to prevent significant losses from appearing on its financial statements and to conceal the extent of its indebtedness.
Enron also set up independent partnerships whereby it could also legally remove losses from its books if it passed these “assets” to these partnerships. Equally, investment money flowing into Enron from new partnerships ended up on the books as profits, even though it was linked to specific ventures that were not yet up and running. It now appears that especially in transactions with Special Purpose Entities (SPE) to decrease losses, enlarge profits, and keep debt away from its financial statements in order to enhance its credit rating and protect its credibility in the market.
Enron began to use sophisticated accounting techniques to keep its share price high, raise investment against its own assets and stock and maintain the impression of a highly successful company.
Enron valued future contracts in such a way as to vastly inflate its reported profits.
Strategic Allies
Pressure audit partner.
Enron used multiple strategic partners to help cover up their accounting schemes.
Arthur