Summary: Enron's Accounting Scandal, Contributing Factors & Lessons

This essay provides a summary of the Enron scandal, drawing from the article "Enron: What Happened and What We Can Learn From It" by George J. Benston and Al L. Hartgraves. The core issue was Enron's aggressive accounting policies related to non-consolidated special purpose entities (SPEs), sales of assets to these SPEs, and marking investments to fair value, which led to overstated revenue, net income, and shareholder equity, alongside understated liabilities. The essay also holds US GAAP, SEC, FASB, and AICPA accountable for not addressing Enron's misuse of regulations to keep liabilities off the balance sheet. It suggests that Enron's auditors failed to exercise professional skepticism and may have been influenced by non-audit service fees or a lack of understanding of Enron's complex financial operations. The essay concludes that both flawed accounting policies and auditing failures contributed to Enron's collapse, highlighting the importance of ensuring auditors possess the expertise to handle the financial activities of the companies they oversee. The essay references supporting articles to reinforce the key points and analysis of the Enron scandal.

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Summary
According to the article named “Enron: what happened and what can we learn from it”
by George J. Benston and Al L. Hartgraves, the main reason behind Enron’s overstated net
income, revenue and shareholder’s equity along with the understatement of liabilities is their
aggressive accounting policies for non-consolidated SPEs, sales of other assets and stocks to the
SPEs and mark-up of investment in the fair value (Benston & Hartgraves, 2002). The article also
considers US GAAP, SEC, the FASB and the AICPA responsible for this accounting disaster of
Enron due to the fact that all these bodies were aware of the fact that the management of Enron
was using the regulations as medium for keeping the liabilities off from the balance sheet (da
Silveira, 2013). The principles of UK GAAP put the obligation on the companies for tax liability
avoidance for the interests of the shareholders. For this reason, Enron has adopted the same
policy as the gatekeepers of the company did not do anything in spite of knowing the fact. The
report also indicates towards the fact that the auditors of Enron did not exercise their professional
skepticism. The article has also indicates towards the possibility that the auditors of Enron might
have overlooked the presence of aggressive accounting policy (Bhasin, 2013). Another
possibility could be the acceptance of non-audit service related fees by the auditors from the
company. The article also indicates towards the fact that the auditors of Enron might be unable to
understand the complex financial operations of Enron. In this process, one major lesson is to
ascertain the fact that whether the selected auditors are able to deal with the existing business and
financial activities of the companies (Markham, 2015). Thus, it can be said from the above
discussion that both the auditors and accounting policies are responsible for the collapse of
Enron.

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References
Benston, G. J., & Hartgraves, A. L. (2002). Enron: what happened and what we can learn from
it. Journal of Accounting and Public Policy, 21(2), 105-127.
Bhasin, M. L. (2013). Corporate accounting scandal at Satyam: A case study of India’s
enron. European Journal of Business and Social Sciences, 1(12), 25-47.
da Silveira, A. D. M. (2013). The Enron scandal a decade later: lessons learned?.
Markham, J. W. (2015). A financial history of the United States: From Enron-era scandals to the
subprime crisis (2004-2006); From the subprime crisis to the Great Recession (2006-
2009). Routledge.