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The Enron Scandal

The Enron Scandal. By Aleksandra Whistle, Rachel Davis and Jie li. Background Information. Kenneth Lay. Chairman and CEO of Enron. Jeffrey Skilling. CEO of Enron. Andrew Fastow. Chief Financial Officer. Arthur Andersen. One of the top 5 largest accounting firms in the U.S.

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The Enron Scandal

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  1. The Enron Scandal By Aleksandra Whistle, Rachel Davis and Jie li

  2. Background Information

  3. Kenneth Lay • Chairman and CEO of Enron

  4. Jeffrey Skilling CEO of Enron

  5. Andrew Fastow • Chief Financial Officer

  6. Arthur Andersen • One of the top 5 largest accounting firms in the U.S. • Found guilty of criminal charges; lost license • Destroyed Enron documents

  7. Sharron Watkins • Vice President for Corporate Development at Enron • Whistle-Blower • Wrote an autonomous letter to Lay informing him of financial discrepancies

  8. “Mark to Market” Accounting • allowed them to record estimated future net cash flow from deals at the same time the deal was signed. • Enron never changed their assumptions even through there was evidence that those assumptions were no longer valid.

  9. Enron in India • Constructed a power plant in India • Lost $1 billion on the investment • Executives earned multi-million bonuses

  10. Special Purpose Entities (SPEs) • Removes liabilities off of the balance sheet and hides them in SPEs • SPEs were created by Fastow to hide the company’s debt and losses

  11. Implications

  12. Collateral Damage • 20,000 employees lost their jobs and medical insurance • Employees lost $20 billion in retirement funds • Retirees lost $2 billion in pension funds • But the top executives were paid bonuses of $55 million and cashed in $116 million in stock…

  13. Sarbanes-Oxley Act • Established the Public Company Accounting Oversight Board to develop standards for the preparation of audit reports • Requires executives to sign off on financial reports and individually certify the accuracy of financial information • Requires the company to disclose knowable conflicts of interest • Enhances penalties for white collar crime and protects whistle-blowers

  14. Sociocultural Implications • Society was disillusioned with corporate culture • Support for deregulation before the scandal; after, people were not so sure anymore • Millions of dollars were lost in Enron stock investments by individual and institutional investors

  15. Conclusion

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