Bankruptcy of Enron Corp Essay Example | Topics and Well Written Essays - 1000 words

Bankruptcy of Enron Corp - Essay Example Center of discussion in this paper is Enron Corp. that filed the biggest case of bankruptcy in U.S history in December 2001 because of various unethical issues. Enron Corporation had taken pride in and strongly believed that that its personnel would take care of the rising risk without any consequences. The culture encouraged greed and centered on the amount of money that could be made for directors. For instance, Enron's compensation system appeared to be less apprehensive of generating income for its shareholders than with enriching the wealth of the company. The corporate culture at Enron reportedly promoted exploitation. The collapse of the company has shocked the entire financial world and raised many serious questions concerning the subject of corporate governance. The Enron Corporation bankruptcy is becoming the most well-known and extremely publicized bankruptcy case in the history of financing. Several unethical issues have contributed to Enron’s bankruptcy. These inc lude: Bad Communication-: The stock analysts at Enron were frequently vague and failed to specify their finances and operation cost. Enron also lied to the various stakeholders, and their financial statements concealed the various significant losses to their Stockholders and failed in delivering the bad news. Improper Accounting: One of the primary reasons for Enron’s bankruptcy was the company’s reprehensible accounting system. Enron used dishonest accounting measures to generate their incomes. Even though these systems produced more flattering financial image of the company, external observers believed they may represent deceitful financial reporting since they did not precisely portray the true financial condition at the company (Avey et al., 2011). For instance, Enron created the special-purpose entities (SPEs) to change the assets and debt in its balance sheet and raise cash flow by indicating any sale of assets through its books (Ferrell et al., 419). Hiding the losses and inflating profits: Enron Corporation has a cash flow of negative amount $154 millions, but the company claimed of 3 million in its cash flow Misleading the financial reports-: The company filed for bankruptcy after disclosing that it used (SPEs), Special Purpose Entities, which concealed losses. The company used SPEs to take out debts and assets from its balance sheet so as to enable it to amplify its Cash Flow. The improper business and accounting procedures promoted greediness, which caused more than 5000 Enron workers to lose their occupation due to the greed of the company’s executive.Enron's Vice president, Sherron Watkins constantly sent reports out to the then Chairman detailing the poor accounting procedures. The major issue was that the company got its internal audit function from outside. Enron outsourced its internal and external auditing function to Arthur Andersen (Ferrell et al., 419). 2. Did Enron's bankers, auditors, and attorneys contribute to Enro n's demise? If so, what was their contribution? Enron's demise was caused by its bankers, auditor and attorneys. Enron's bankers: the bankers recognized that there was a problem with Enron finances but failed to take appropriate action. JPMorgan Chase and Citibank previously knew of the tax regulations and had the opportunity of obtaining sources for audited accounts. These banks still gave huge amounts of money in loans to the Enron (Ferrell et al., 419). Enron's auditor: Enron auditors were aware in mid August of improprieties in the energy company's accounting practices from the concerns of a senior Enron employee. Arthur Andersen was liable for making sure that the financial statements and internal bookkeeping is accurate. Potential investors used Anderson's reports to judge the company’s financial security and future potential before choosing whether on not to invest. This information was also used by current investors to decide whether their funds should remain invested in the company. The