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The End
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Enron became the largest seller of natural gas in North America by 1992, its trading of gas contracts earned $122 million. EnronOnline trading website allowed the company to better manage its contracts trading business.
In an attempt to achieve further growth, Enron pursued a diversification strategy. The company owned and operated a variety of assets including gas pipelines, electricity plants, pulp and paper plants, water plants, and broadband service.
Enron hired numerous Certified Public Accountants (CPAs) as well as accountants who had worked on developing accounting rules with the Financial Accounting Standards Board (FASB). The accountants searched for new ways to save the company money, including capitalizing on loopholes found in Generally Accepted Accounting Principles (GAAP). An accountant revealed "We tried to aggressively use the literature [GAAP] to our advantage.
What I learned
History
Enron's stock increased from the 1990s until year-end 1998 by 311 percent. However, the stock increased by 56% in 1999 and a further 87% in 2000, compared to a 20% increase and a 10% decrease for the index during the same years. December 31, 2000, Enron's stock was priced at $83.13 and its market capitalization exceeded $60 billion, 70 times earnings. Enron was rated the most innovative large company in America in Fortune's Most Admired Companies survey.
In 1985, Kenneth Lay merged the natural gas pipeline companies of Houston Natural Gas and InterNorth to form Enron. In the early 1990s, he aided to initiate the selling of electricity at market prices and, soon after, the United States Congress approved legislation deregulating the sale of natural gas.
Enron's complex financial statements were confusing to shareholders and analysts. Furthermore, its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to indicate favorable performance.
Accountants need to be mindful of how they operate. What's right and what's profitable are to be kept separate. Enron was a successful company and it had all the tools to remain on top had the accountants and top level executives done their jobs ethically.