Crucial Facts About The Enron Scandal

1. Crucial Facts About The Enron Scandal There are only a handful of cases in the history of corporate America that are as dramatic as the story of Enron. That’s the reason why a lot of business and management students prefer to do a case study on this infamous company in their academic course. However, a lot of them don’t know where to start while writing a case study on Enron. This article may provide such students with Enron case study help as they can find 4 crucial facts about Enron scandal here. 1.The origin of Enron: Enron was formed in 1985 after Houston Natural Gas Company and Omaha Base InterNorth Incorporate went through a merger. Kenneth Lay, who was the CEO of Houston Natural Gas, became the CEO and Chairman of Enron following the merger. Lay appointed Jeffrey Skilling after creating the Enron Finance and Corporation in 1990. At that time Skilling was a consultant at McKinsey and Company. The minimal regulatory environment allowed Enron to flourish. The company even took the dot-com bubble to its advantage. 2.The company used the Mark-to-Market accounting method: Skilling changed Enron's accounting from a traditional historical cost accounting method to mark-to-market (MTM) accounting method. It allowed the company to receive official SEC approval in 1992. The MTM method is a measure of the fair value of accounts that can change over time, such as liabilities and assets. Some believe that MTM was the beginning of the end of Enron as it eventually allowed the company to log estimated profits as actual profits. 3.How Enron hid its debt? To cope with the mounting liabilities, a star financial officer, Andrew Fastow was promoted to the position of CFO in 1998 by Enron. Fastow and others at the company made a plan to use off-balance-sheet Special Purpose Vehicles

2. (SPVs), also referred to as Special Purposes Entities (SPEs) to hide its huge stack of debt and toxic assets from creditors and investors. The primary objective of these SPVs was to hide the reality of Enron's accounting rather than operating results. These SPVs would use the stock to hedge an asset listed on Enron's balance sheet. 4.The role of Blockbuster video: Blockbuster, the giant video rental chain, had a major role in Enron scandal. In 2000, Blockbuster and Enron Broadband services entered into a partnership to intercept the burgeoning video-on-demand market. However, Enron started to log expected earnings based on the expected growth of the VOD market, which actually inflated the numbers. When the dot-com bubble began to burst, Enron invested hundreds of millions of dollars on building high-speed broadband telecom networks. However, the company made no return. When the recession hit in 2000, many trusting investors and creditors found themselves on the losing end. Source:- http://www.socialwider.com/blog/494096/4-crucial-facts-about-the-enro n-scandal