Enron Scandal

Enron scandal was all about the smartly and cunningly organized accounting
fraud that successfully reported high revenue profit, low liabilities and high asset values.
This fake report had thus gain the trust and belief of society that Enron Corporation was a
fast booming company that was worthy and potential to be invested. In October 2001, the
reveal of Enron Scandal has resulted in the bankruptcy of Enron Corporation, which caused
the owners or shareholders of Enron to lose nearly $11 billion.
Enron Corporation was founded by Kenneth Lay in 1985 after merging Houston
Natural Gas and InterNorth. This American company involved themselves in energy,
commodities, and services. After implementing online trading and diversifying their
business, the share of Enron rose sharply for nearly 311% in 1998. Hiring around 20000
staffs, this world leading company claimed that it had revenue of 101 billion in year 2000. It
was also listed as the Americas Most Innovative Company in Fortune for six consecutive
years.
However, this was just a big lie, created by Skilling, Fastow and Lay who were
unethical. It was told that Jeffrey Skilling, the CEO after Kenneth Lay, had trained the staffs
that were able to come up with cunning accounting fraud that hid billions in debt of the
company. They manipulated the financial report through special purpose entities (SPE),
which was normally used in complex financings to hide debts, hide ownership and to isolate
the company from financial risk. An accountant of Enron Corporation admitted that they
focused on finding loopholes in Generally Accepted Accounting Principles (GAAP) and
utilized the loopholes to save the company money. In this way, they prevented the losses of
the company to be revealed to the public and more importantly, the owners of the company.
They fooled the shareholders to believe that Enron was still profitable to operate, while in
fact, was totally wrong. The management of Enron has surely neglected and threw their
ethics away. For the sake of their own benefits, salaries, position and reputation, they risked
the whole company and the owners of the company. For me, they have forgotten what
finance is all about, that is to find maximum wealth for the owners of the company. In this
case, their unethical behaviour had destroyed the shareholders wealth.
Later on, Skilling also proposed the mark to market accounting, which recorded future
profit by any deal as if real today. This led to a high income statement that stated more
profit than in real. This again, showed that Skilling was unethical. He could not make a right

judgment and action. He was so obsessed with the continuous earning and was afraid to
admit the fact that the company occurred losses in their business. And here born a
perception that Enron Corporation was the top, and any losses should not be reported, but
instead covered with earning. Again, this unethical decision finally led Enron Corporation to
bankrupt.
In addition, Enron also pressured Arthur Andersen which was the auditing firm of
Enron to ignore the fraud. By allowing some other firms such as Ernst and Young to do the
accounting task and create an illusion to change firm, Enron made sure Andersen to abide
with their requirements. Blinded by the huge amount of annual fees, Arthur Andersen
concealed the accounting fraud of Enron Corporation. From here, we can see that there was
a conflict of interest. Even though they knew that this was a wrong decision that might
destroy their reputation as one of the Big Five accounting firms, yet Andersen decided to
give up their integrity and take the money. The recklessness and greediness of Andersen had
not only brought question and criticize from the public, but also caused thousands of people
including Enrons workers, suppliers, creditors, owners to bear the losses together.
However, in this case, there was still minority who still remember about business
ethical and their responsibility to take the right action. Sherron Watkins, former vice president
of Enron for instance, wrote a letter to Kenneth Lay after realizing that there was something
amiss with the balance sheet. Although no actions were taken after 8 months, this did not stop
her from telling the truth. She finally revealed the scandal to the public all by herself.
From this incident, I realized the importance of being ethical in business world. Being
ethical is simply doing the right thing. We should never take the wrong and unethical
decision just because of a little benefit offered as what Andersen did. Besides, we should
never give up on our own integrity and reputation, as losing these two elements will cause
the others to lose trust on us. The habit of thinking only for ourselves and take actions that
only benefit ourselves should also be eliminated. We have to remember that as a manager or
leader, it is our responsibility to take care of the company workers, owners, and creditors
welfare. Being ethical in business world, will make us respected and trusted. The others will
feel safe to co-operate with us and thus ensuring a safe and smooth business transactions.