5813 Shirke Final Paper

Submitted By amodaks
Words: 3308
Pages: 14

Final Paper

I have selected the non-fiction book named ‘The Smartest Guys in the Room’ written by Bethany McLean and Peter Elkind. The book is based on the The Amazing rise and Scandalous fall of the Enron Corporation. Enron Corporation was an American energy, commodities and service company based in Houston, Texas. Before its bankruptcy in December 2, 2001, Enron employed more than 20,000 employees and was one of world’s major electricity, natural gas, communications and pulp and paper company with claimed revenues of nearly $111 Billion during the year 2000. In 1985 Kenneth Lay (the founder of Enron Corporation) merged the natural gas pipeline companies of Houston Natural gas and Internorth to form Enron. Enron was named by the Fortune magazine as ‘America’s Most Innovative Company’ for six consecutive years. Enron became the largest seller of natural gas in North America by 1992, its trading of gas contracts earned $122 Million (before interest and taxes) the second largest contributor to the company’s net income. The company’s founder Kenneth Lay helped to initiate the selling of electricity at market prices, and soon after the United States Congress approved legislation deregulating the sale of natural gas. The resulting markets made it possible for traders such as Enron to sell energy at higher prices, which significantly increased its revenue. In an attempt to achieve further growth, Enron pursued a diversification strategy. The company owned and operated a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants and broadband services across the globe. The downfall of Enron Corporation began with its complex financial statements which were confusing to the shareholders and analysts. In addition, its complex business model and unethical accounting practices required that the company use accounting limitations to misrepresent its earnings and modify its balance sheet to indicate favorable performance. The scandal began in 1990 Enron’s Chief Operating Officer Jeffrey Skilling hired Andrew Fastow, who was well acquainted with the burgeoning deregulated energy market that Skilling wanted to exploit. Then, in 1993 Fastow began establishing numerous limited liability special purpose entities (a common business practice in the energy sector); however this allowed Enron Corporation to transfer liability so that it would not appear in its accounts, allowing it to maintain a robust and generally increasing stock price and thus maintaining its critical investment grade credit ratings. This clearly is related to our coursework as it specifies the tendency of data manipulation in order to make more profits and thus, I have selected this respective book as it deals with the Enron’s accounting loopholes, special purpose entities, and poor financial reporting by which Enron corporation was able to hide billions of dollars in debt from failed deals and projects. It deals with the course content as the scandal gets operated by the company’s shareholders who file a lawsuit against Enron Corporation after the company’s stock price which achieved a high of US $90.75 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The U.S Securities and Exchange Commission (SEC) after which began an investigation. The scandal also brought into question the accounting practices activities of many corporations in the United States, the scandal also affected the greater business world by causing the dissolution of the Arthur Anderson accounting firm. Thus, the performance metrics were applied and the fraudulent operations of Enron Corporation are brought under the limelight.

Thus, it tells us the importance of performance metrics which have to be applied in a timely manner in order to make the system function well. The aftermath of the scandal was that Enron Corporation filed for bankruptcy in the Southern District of New York during late 2001. It ended its bankruptcy during November…