Thursday, October 17, 2019

Enron Corporation Case Study Example | Topics and Well Written Essays - 1500 words

Enron Corporation - Case Study Example Executive Summary Some stories are so unbelievable that they become Hollywood movies. One of those stories is the Enron scandal. The movie called Enron the Smartest Guys in the Room was created based on the Enron story. Enron was once the biggest company in the energy industry, but a complex fraudulent scheme that began many years prior to the revelation of the fraud led to its demise. The corporate executives of the company were the primary agents that designed one the biggest accounting scandals in United States history. Two of the accounting tools that were used by Enron to cook up the numbers were market to market accounting and off balance sheet liabilities. The company would own only 49% of a subsidiary in order not to have to report liabilities of the entity. Debt from Enron was hidden in thousands of hedge funds or subsidiaries. It was all a huge scam. The organization violated or used to its advantage a variety of organizational theories. Five of the theories that influenced the behavior of Enron management and its employees were agency problem, corporate culture, teamwork, perception, and leadership. Agency problems exist at Enron in terms of the yearly bonuses, inside trading activity, and in the partnership scheme particularly the LJM partnership. The executive management team colluded with each other in a team effort. The leadership abilities of the top executive managers were outstanding. The corporate culture of the company was based on greed, disloyalty, and unethical behavior. The managers of the company were able to create a perception of a superb company that had tremendous financial performance. This was not true since the company was a fraudulent firm. Statement of the Problem Enron Corporation cooked up the numbers by violating the conservatism principle in market to market transactions and used deceptive accounting practices to hide liabilities by creating a complex network of partnerships. The mastermind of the network hedge funds was An dy Fastow. All the top corporate executives were crooked. The traders were unethical and money hungry. In a partnership called LJM Fastow stole $45 million. The company had a rotten corporate culture where the employees had tough pressures to perform or they would be fired. The company got corrupted and collusion occurred which led to the biggest corporate crime of the 21 century. Analysis of the Problem The Enron accounting scandal was a well orchestrated machine. Prior to the whistleblower revealing the truth nobody knew that the accounting of the company was not truthful. The Securities and Exchange Commission approved the use of market to market accounting for Enron. They could have never imagined that it was going to be used as a tool for deception and financial fraud. When the company got a new energy contract they would recognized the profits immediately without any cash coming in. The executives exaggerated the benefits of the energy contracts in order to boost profits and r eceive bonuses and rewards for fake money. The company was creating monopoly money that did not really exist. In the year 2000 the company reported $1 billion in profits. The truth was that they did not make any money whatsoever. The company for years was overstating the value of the energy contracts. As time passed most of the earnings did not manifest themselves. The company in reality was

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