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How The Enron Scandal LED to The Creation of New Business Law

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Words: 506 |

Page: 1|

3 min read

Published: May 24, 2022

Words: 506|Page: 1|3 min read

Published: May 24, 2022

The Enron Company was founded in July 1985 following the merger of the Houston Natural Gas companies of which Kenneth Lay was president and CEO and InterNorth, creating the largest gas transportation network in the United States. In principle, this company was dedicated to the administration of gas pipelines, as well as the transmission of electrical energy. In the following year, Lay was appointed director of the new company, which after only four years became one of the largest companies in the United States. 

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In 1989 with the arrival of Jeffrey Skilling, the company discovered what accounting engineering is (liabilities that became assets, loans that were computed as income, 'makeup' debt, inflated benefits, etc.) With the help of Arthur Andersen, who was one of the five most important audits in the world at the time, they committed the fraud, manipulating the information in the reports with great profits, when in fact, the debts far exceeded the profits. 

During 2001, an accounting discrepancy appeared, as a result of the poor application of accounting techniques. They were excluded from the company's consolidated balances in three companies that should be included, in which they reflected many liabilities that affected Enron's global accounts. After that, Jeffrey Skilling before bankruptcy, resigned his charge claiming family motives and sold the shares he had in the company. Subsequently, the company admitted to inflating its benefits, which caused its shares to precipitate further. 

In October of the same year, Enron declared losses of 638 million euros in the results of the third quarter of the year. In January 2002, the investigation into the case of Arthur Andersen, the audit of the energy company, began. The jury found Andersen guilty for obstruction of justice in the 'Enron case' for destroying documents on the losses of more than one billion dollars in the company he audited, this happened in June of that year. In January 2004, Skilling and Lay were charged with the fraud. 

On May 25, 2006, Kenneth Lay, known as the president of Enron and Jeffrey Skilling, his former executive director, were convicted of conspiracy to commit fraud. Lay and Skilling faced 6 and 28 charges of conspiracy, fraud and financial maneuvering to hide losses and exaggerate Enron's profits, in order to attract money from investors. On July 5 of the same year, Kenneth Lay, 64, died of a heart attack, who risked a penalty of up to 45 years in jail. On October 23, 2006 Jeffrey Skilling was sentenced to a sentence of 24 years in prison after having been convicted of 19 charges during his tenure in less than a year of his stay at the company and resigned only four months before the bankruptcy. 

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After the case of Enron fraud, a law called “Sarbanes Oxley Law” was developed, which aims to establish more rigid and efficient internal control measures to prevent publicly traded companies from carrying out fraud. For accountants and auditors, this Law requires them to extend their tests before issuing an opinion that supports the information presented in the financial statements of the companies.

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How the Enron Scandal Led to the Creation of New Business Law. (2022, May 24). GradesFixer. Retrieved June 19, 2024, from https://gradesfixer.com/free-essay-examples/how-the-enron-scandal-led-to-the-creation-of-new-business-law/
“How the Enron Scandal Led to the Creation of New Business Law.” GradesFixer, 24 May 2022, gradesfixer.com/free-essay-examples/how-the-enron-scandal-led-to-the-creation-of-new-business-law/
How the Enron Scandal Led to the Creation of New Business Law. [online]. Available at: <https://gradesfixer.com/free-essay-examples/how-the-enron-scandal-led-to-the-creation-of-new-business-law/> [Accessed 19 Jun. 2024].
How the Enron Scandal Led to the Creation of New Business Law [Internet]. GradesFixer. 2022 May 24 [cited 2024 Jun 19]. Available from: https://gradesfixer.com/free-essay-examples/how-the-enron-scandal-led-to-the-creation-of-new-business-law/
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