Enron Case Study Summary Ppt

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Presentation Transcript
INTRODUCTION
  • Enron Corporation was an American energy, commodities, and services company based in Houston,Texas.
  • It was one of the world's major electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $101 billion during 2000.
  • Fortune named Enron "America's Most Innovative Company" for six consecutive years.
  • Deep debt and surfacing information about hiding losses gave the company big problems and in the late 2001 Enron declared bankruptcy under Chapter 11 of the United States Bankruptcy Code.
WHAT MADE IT: SCANDAL

In 1990’s corporate self regulation in US had been widely thought to have reached a high plateau of evolutionary success due to proliferating good practices and sophisticated institutional monitoring. However, bankruptcy of Enron shook the entire system. Some of the major highlights of scandal are:

  • $30M of self dealings by CFO
  • $700M of net earnings disappeared
  • $1.2B shareholder’s equity disappeared
  • Over $4B of hidden liabilities
  • Recorded assets were inflated, fraudulent and non-existent
  • Debt and losses were eliminated from financial statements.
FALL OF ENRON
  • Enron's complex financial statements were confusing to shareholders and analysts
  • Complex business model(differentiation strategy) and unethical practices
  • Deregulation
  • Pension and auditing issues
  • Relationship with Banker’s
  • Mark to Market Accounting
  • Special Purpose Entities
Causes of Enron Bankruptcy

The senior executives believed Enron had to be the best at everything it did and that they had to protect their reputations and their compensation as the most successful executives in the U.S.

Conflicts of interest and a lack of independent oversight of management by Enron's board contributed to the firm's collapse.

Sarbanes-Oxley Act-2002
  • Came into force mainly due to financial scandals committed by cooperate giants like Enron, WorldCom, etc.
  • Created by U.S. senator Paul Sarbanes(D-Maryland) and US Congressman Michael Oxley((R-Ohio)
  • It was signed into law on 30th July, 2002
Objectives of Sarbanes-Oxley Act 2002

In response to companies like Arthur Anderson, Enron, WorldCom scandal, the SOX Act seeks to:

  • Restore public confidence
  • Assure ethical business practices
  • Create Public Accounting Oversight Board(PACOB)
  • Set audit standards
  • Seek financial control
Highlights of SOX ACT
  • Public Company Accounting Oversight Board
  • Auditor Independence
  • Corporate Responsibility
  • Enhanced Financial Disclosures
  • Analyze Conflicts of Interest
  • Commission Resources and Authority
  • Studies and Reports
  • Corporate and Criminal Fraud Accountability
  • White-Collar Crime Penalty Enhancements
  • Corporate Tax Returns
Possible Lessons Learnt
  • Structural Overhaul of the system
  • Punish Corporate Responsibility
  • Workers participation and power in management decision
  • Struggle against trade agreements
  • Questioning Free Markets/Capitalism

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