Bachelor of Commerce Degree in Accounting Accounting Assignment Help

Assignment Task

QUESTION 

• As 2002 began, energy Trader Enron Corp. found itself at the centre of one of
• corporate America’s biggest scandals. In less than a year, Enron had gone from
• being considered one of the most innovative companies of the late 20th century to
• being deemed a byword for corruption and mismanagement.
• Enron was formed in July 1985 when Texas-based Houston Natural Gas merged
• with InterNorth, a Nebraska-based natural gas company. In its first few years, the
• new company was simply a natural gas provider, but by 1989 it had begun trading
• natural gas commodities, and in 1994 it began trading electricity.
• The company introduced a number of revolutionary changes to energy trading,
• abetted by the changing nature of the energy markets, which were being
• deregulated in the 1990s and thus opening the door for new power traders and
• suppliers. Enron tailored electricity and natural gas contracts to reflect the cost of
• delivery to a specific destination—creating in essence, for the first time, a nationwide
• (and ultimately global) energy-trading network. In 1999 the company launched
• Enron Online, an Internet-based system, and by 2001 it was executing on-line trades
• worth about $2.5 billion a day.
• By century’s end Enron had become one of the most successful companies in the
• world, having posted a 57% increase in sales between 1996 and 2000. At its peak
• the company controlled more than 25% of the “over the counter” energy-trading
• market—that is, trades conducted party-to-party rather than over an exchange, such
• as the New York Mercantile Exchange. Enron shares hit a 52-week high of $84.87
• per share in the last week of 2000.
• Much of Enron’s balance sheet, however, did not make sense to analysts. By the
• late 1990s, Enron had begun shuffling much of its debt obligations into offshore
• partnerships—many created by Chief Financial Officer Andrew Fastow. At the same
• time, the company was reporting inaccurate trading revenues. Some of the schemes
• traders used included serving as a middleman on a contract trade, linking up a buyer
• and a seller for a future contract, and then booking the entire sale as Enron revenue.
• Enron was also using its partnerships to sell contracts back and forth to itself and
• booking revenue each time.
• In February 2001 Jeffrey Skilling, the president and chief operating officer, took over
• as Enron’s chief executive officer, while former CEO Kenneth Lay stayed on as
• chairman. In August, however, Skilling abruptly resigned, and Lay resumed the CEO
• role. By this point Lay had received an anonymous memo from Sherron Watkins, an
• Enron vice president who had become worried about the Fastow partnerships and
• who warned of possible accounting scandals.
• As rumours about Enron’s troubles abounded, the firm shocked investors on
• October 16 when it announced that it was going to post a $638 million loss for the
• third quarter and take a $1.2 billion reduction in shareholder equity owing in part to 
• Fastow’s partnerships. At the same time, some officials at Arthur Andersen LLP,
• Enron’s accountant, began shredding documents related to Enron audits.
• By October 22 the Securities and Exchange Commission had begun an inquiry into
• Enron and the partnerships; a week later the inquiry had become a full investigation.
• Fastow was forced out, while Lay began calling government officials, including
• Federal Reserve Chairman Alan Greenspan, Treasury Secretary Paul O’Neill, and
• Commerce Secretary Donald Evans. In some cases, officials said, Lay was simply
• informing them of Enron’s troubles, but Lay reportedly asked for Evans to intervene
• with Moody’s Investors Service, which was considering downgrading Enron bonds
• to noninvestment-grade status. 

Note- The Enron Auditing Scandal: Discuss, providing detailed background, key Audit pre-engagement and planning activities consideration

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