Responsible for the collapse of Enron
Enron was founded in 1985, and as one of the world’s leading electricity, natural gas, communications and pulp and paper companies before it bankrupted in late 2001, its annual revenues rose from about $9 billion in 1995 to over $100 billion in 2000.
Throughout the late 1990s, Enron was almost universally considered as one of the United States’ most innovative companies. The company continued to build power plants and operate gas lines, but it became better known for its unique trading businesses.
At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud. According to data, the drop of Enron’s stock price from $90 per share in mid‐2000 to less than $1 per share at the end of 2001, caused shareholders to lose nearly $11 billion. And Enron revised its financial statement for the previous five years and found that there was $586million in losses. Enron filed for bankruptcy on December 2, 2001.
- Who do you think was responsible for the collapse of Enron? (15 marks)
- What control mechanisms could there have been to prevent such a scandal? (15 marks)
- What is the connection between the Enron scandal and the Sarbanes‐Oxley Act? (15 marks)
