INTRODUCTION

The events that led to the collapse of Enron, the largest energy company in the US, are collectively
referred to as the Enron Scandal. This incident also involved Arthur Andersen, one of the biggest
auditing and accounting firms, and as a result, both people were sentenced to prison. The business was
ranked as the seventh-fastest growing firm in the US in the 2000s. Yet, as a result of the company’s
accounting fraud, they later came to be renowned as the greatest bankruptcy in American history.
Internal employees who merely wanted to make money and fulfill their personal desires were to blame
for the bankruptcy. The demise of Enron involved either illegal or dishonest behavior.

Because this company and firm had a great name in the market, the bankruptcy announcement was
startling to everyone. Also, investors found this corporation’s financial track record to be quite desirable.
Investors were shocked by this company’s abrupt bankruptcy. All of this was caused by the company’s
chief financial officer’s use of questionable accounting information and fictitious earnings in an effort to
preserve the company’s reputation. And the audit firm was also cooperating in the fabrication of the
real profits.

Enron also had to deal with several claims that it had connections to political power. The organization’s
connections to George W. Hedge and the local political issues in Houston have received a lot of attention
in recent years. Enron participated in a joint oil drilling operation in 1986 with Bush’s company. There
are rumors that George W. Hedge and Kenneth Lay even got along. George W. Hedge also approved a
law that deregulated Texas electrical markets, which unintentionally resulted in significant benefits for
this organization. Lay has employed former George W. Hedge administration officials.

HISTORY

The two natural gas transmission firms were Huston and Inter North Inc. These two were combined, and
the new entity was given the moniker HNG Inter North. Subsequently, Kenneth Lay rebranded it to
Enron Company. The business lost its primary right to manage its pipelines in the late 1990s. The US
Congress took this action to deregulate natural gas sales. They consequently had to deal with a
significant loss.

Yet, this company later began to function as a trader of energy derivative contracts thanks to the
assistance of a consultant named Jeffery Skilling, who later rose to the position of chief operating officer
for the business. In other words, companies began to serve as a conduit between natural gas producers
and their clients.

Wealth Under Skillful Leadership

Skill altered the company’s faith. His management style seemed to be quite effective. The market for
contracts for natural gas started to be dominated by Enron. These deals allowed them to start making
enormous gains.
After that, skilling began progressively altering the society to support trading. To increase the revenues,
he also hired qualified MBA candidates from all over the world. Andrew Fastow was one of his bright
young employees. Later on, he was promoted to Chief Financial Officer.

By making investments in the construction of a telecommunications network, they began to grow their
business and experience high-speed trade. By that point, they had to contend with intense rivalry in the
energy trading industry. Their profits started to decline. They began to fabricate or conceal their
shortages in order to appease the shareholders and preserve their reputation.

Loss of Profit and False Data

In an effort to keep shareholders calm and inspire confidence in their company, they began to create the
illusion of higher current profits. They additionally began transferring profits. Which are still not
recorded on the books. The severity of their losses therefore appears to be less than it actually was.
Fastow himself was in charge of all of this transferring.

It was simply too easy for Enron and the company to work together to conceal financial obligations and
misfortunes due to the relationships the organization had with the audit firm.

On the other hand, throughout these years, Arthur Andersen served as both its auditor and its financial
counselor, or consultant. They participated equally in fabricating and concealing the proof of losses and
improperly carried out the company’s audit. When this massive falsehood was revealed, the public was
shocked, which caused Enron to go bankrupt.

Consequences they faced

Decline in share price

The corporation started to experience a decline in share price on the stock market after the accounting
crimes were revealed. At the end of November 2001, the share price had dropped from $90 to around
$1. 401k pensions were also based on the equity of the company at the time. After this occurs, Lay and
Skilling quit. Also, Andrew Fastow lost his job two days after the SEC launched an investigation into the
incident.

Also, the management was unable to meet the needs of its staff when the company was on the verge of
bankruptcy. Several employees did not receive their pay. There were also unpaid pensions. Even they
were unable to give their staff the necessities of life.

Prison and Bankruptcy

Enron filed for chapter 11 bankruptcy protection on December 2, 2001. Numerous high-ranking Enron
employees were charged with various crimes and received prison sentences as a result. Arthur Andersen
was in for serious repercussions as well. Due to their diminished market repute, they lost the majority of
their customers. The reputation was so severely tarnished that it began to disintegrate. Hundreds of civil
lawsuits were also brought by the shareholders against the company and the audit firm in addition to
the federal legal actions.

The public's faith in the US banking system has been severely damaged. His credibility as an auditing
firm was damaged. Because George W. Bush and Chief Executive Officer Kenneth Lay get along well, this
has an effect on his administration as well.

New Laws and Regulations

The government was forced by this incident to enact new rules and regulations that will give
stockholders a greater sense of protection. These regulations were put in place to make sure that
publicly traded corporations’ financial disclosures remained accurate. Among those was the Sarbanes-
Oxley Act of 2002, which was the most significant. This act stipulates that businesses must pay fines if
their financial documents are falsified, changed, or destroyed. Also, the act forbade auditing companies
from serving as consultants for the same customer.

Conclusion

In a nutshell, the Enron scandal is solely the result of the abuse of power and influence. What we take
out from it is that we shouldn’t abuse power for personal gain. To one’s duties and labor, one should be
sincere and devoted. These actions are solely the responsibility of the top management. To reduce the
likelihood of such acts, they should faithfully carry out their responsibilities. In addition, as a top
manager, we should prioritize our tasks. If we act in this way, greed won’t rule us.

Enron Corporation’s poor management put them in a position where they had to conceal their
inadequacies. Our opinion is that the manager’s primary duty is to deliver quality management. The
management must make every effort to create such a setting. But, as humans make mistakes, if they are
unable to manage or sustain the work, they must have the fortitude to face the consequences rather
than trying to run away from and cover up their failures. What was done in the Enron Scandal to cover
up managers’ errors.

The firm of auditors shouldn’t participate as consultants, is another lesson we learned from it. Auditing
is a very honest and tough job. To provide the greatest results, these tasks are carried out by
nonpartisan officials. It was a complete mistake by Arthur Andersen. Because of their desire for money,
they neglected their obligations and began to profit from them.

The company's major asset, as we also learnt, is its financial records. This implies that we are unable to
falsify financial accounts in order to conceal debts or other liabilities as shareholders and investors must
inspect them before investing. The loss of confidence would come from fabricating the statistics. Thus, a
cooperative governance should manage such significant and important issues. The public loses trust in
the government and larger organizations anytime such acts occur, hence it is also obviously unethical to
engage in such behavior. Trust is difficult to rebuild once it has been betrayed.