Audit Scandal
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- Date Submitted: 09/16/2010 09:22 PM
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QUESTION:
Compare/discuss the Enron, Worldcom and Madoff scandal. What need to be done by the Government and also your suggestion as to how to avoid the above scandal?
ENRON
Enron is an energy company based in Houston,Texas that deals with the energy trade on an international and domestic basis. It was formed in 1985 when Houstan Natural Gas merged with InterNorth. Originally Enron was an operator of interstate gas pipeline, by 1989 Enron diversified into trading energy-related commodities. The company had been spectacularly successful at persuading investors that it had found a way of making huge amounts of money out of the reliable but dull business of supplying energy. In few years, Enron becomes the largest merchant of energy in the United States and the United Kingdom. In addition to energy, Enron is already buying and selling cellulose, pulp, paper, fertilizer, plastics, metals and bandwidth. By the year 1999 Enron grew so big, that it became involved in about a quarter of all energy deals in the world.
The success of Enron was phenomenal as how did it manage to fool the regulator and Wall Street community for so long with fake off-the books corporation. Enron grew wealthy due to largely to marketing, promoting power and its high stock price.
Enron’s reported revenue was based on its exploitation of a loophole in accounting rules that allowed it to book revenue from huge energy-derivative contracts at their gross value, not their net value by adopting mark to market accounting. In this case, Enron would build an asset such as power plant and immediately claimed that the projected profit on its books even though it hadn’t made any money yet from it. If the revenue from the plant was less than the projected amount, instead of taking the loss , the company would transfer these assets to an off-the-books corporation, where the loss would go un reported.
Part of the reason the company was able to pull of this manipulation for so long is that CEO,...
Compare/discuss the Enron, Worldcom and Madoff scandal. What need to be done by the Government and also your suggestion as to how to avoid the above scandal?
ENRON
Enron is an energy company based in Houston,Texas that deals with the energy trade on an international and domestic basis. It was formed in 1985 when Houstan Natural Gas merged with InterNorth. Originally Enron was an operator of interstate gas pipeline, by 1989 Enron diversified into trading energy-related commodities. The company had been spectacularly successful at persuading investors that it had found a way of making huge amounts of money out of the reliable but dull business of supplying energy. In few years, Enron becomes the largest merchant of energy in the United States and the United Kingdom. In addition to energy, Enron is already buying and selling cellulose, pulp, paper, fertilizer, plastics, metals and bandwidth. By the year 1999 Enron grew so big, that it became involved in about a quarter of all energy deals in the world.
The success of Enron was phenomenal as how did it manage to fool the regulator and Wall Street community for so long with fake off-the books corporation. Enron grew wealthy due to largely to marketing, promoting power and its high stock price.
Enron’s reported revenue was based on its exploitation of a loophole in accounting rules that allowed it to book revenue from huge energy-derivative contracts at their gross value, not their net value by adopting mark to market accounting. In this case, Enron would build an asset such as power plant and immediately claimed that the projected profit on its books even though it hadn’t made any money yet from it. If the revenue from the plant was less than the projected amount, instead of taking the loss , the company would transfer these assets to an off-the-books corporation, where the loss would go un reported.
Part of the reason the company was able to pull of this manipulation for so long is that CEO,...