Enron Fraud Scandal: A Massive Failure in Corporate Governance

Business Law and
Ethics - Project 2 -
Individual Report: 50%

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Enron Fraud Scandal...................................................................................................................3
Corporate governance.................................................................................................................7
Sarbanes Oxley Act, 2002...........................................................................................................8
CONCLUSION ..............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Accounting frauds is an intentional manipulation of the accounts statement so that the
financial health of any company is created falsely. The companies manipulate the accounts in
order to mislead the investors and shareholders so that the actual position of the organisation is
not foreseen. Enron Corporation has been a massive failure in terms of accounting standards. The
company began to rise and shine in the early years of its corporation but was simultaneously
hiding the huge debts in order to show sound financial position of the firm (Ali, 2020). The
concept of corporate governance got its relevance after the massive scandal of Enron
Corporation where the company failed to follow the concept of corporate governance. In order to
prevent further scandals, the government of USA took an initiative to enact a law on
transparency of accounting system so that the interest of shareholders are protected. This report
shall cover the notorious fraud scandal of Enron Corporation.
TASK 1
Enron Fraud Scandal
Overview of company
Enron corporation was established from the merger of two companies InterNorth and
Houston Natural Gas. The firm took ten years to build its empire of $60 billion. It was headed by
Kenneth Lay, the CEO and chairman of the organisation. The company had around 29000
employees before it went to bankruptcy. Enron was a public company dealing in energy,
pipeline, telecommunication, paper and electricity. The company earned the revenue of around
$101 billion in 2000 before the scandal was highlighted.
The Rise of the enterprise
During the establishment of Enron Corporation, the natural gas pipeline was deregulated
and the company lost its rights on pipelines. The CEO of the enterprise Kenneth Lay hired
Jeffrey Skilling so that a business strategy can be developed in order to grow. The company
acquired huge debts as a result of the deregulation. In 1989, Jeffrey Skilling came up with an
innovative strategy to deal in natural gas commodities by becoming an intermediary between the
supplier and the customers so that there can be solution for Enron's debts (Kulkarni, 2017). The
idea to build a network between consumers and suppliers resulted in energy derivatives which
helped to overcome the debts of the firm.