The Enron Scandal

Enron was a very large American energy company based in Houston, Texas. Late 2001 the company was still one of the world’s leading electricity, natural gas, pulp and paper, and communications companies. But in October 2001 several scandals came at the surface. Since then, Enron became a symbol of well thought-out corporate fraud and corruption.

The ‘Enron scandal’ refers to a systematic and creatively planned accounting fraud. While people saw the company as the proof that it was possible to make fast money in the new service economy, Enron spent more than it received and they kept losses out of their books. The creative accounting namely existed of shadowy constructions with hundreds of subsidiaries.

Eventually all the lies and deception led to Enron’s downfall, resulting in the largest bankruptcy in American history at the time. Only then the seriousness of the case got revealed. After an investigation by the Securities and Exchange Commission (SEC), the American supervisor of different exchanges, revealed that the company exaggerated its profits for a long time and that Enron was in the red for 20 billion dollars. Managers had put millions in their pocket, accountants had destroyed evidence and nearly thousand subsidiaries had been created to evade taxes and to show much better financial figures than they could have done in reality.

In January 2002 a criminal investigation got set, the executive resigned and an ex-CEO committed suicide. Arthur Andersen, the accounting office that approved the last annual accounts, ceased to exist. It speaks for itself that the ‘Enron scandal’ increased the attention for corporate governance worldwide and was the indirect cause of a tighter legislation in this area.

As the accountant is always responsible for the books, the company’s accountancy should be done correctly. According to the deontological rules of accountancy, the accountant must not agree with messing around with the figures.

I believe it’s a disgrace to the accountancy profession to cooperate with such a form of fraud. I can understand that small companies sometimes work without creating an invoice, for, especially in Belgium, the tax pressure is that high that a lot of companies can hardly survive.

But there are limits of course. When it’s just from time to time I can tolerate it, but it should never have a big influence on the company’s figures. Sure, when I work as an account in a company I don’t want to be aware of these practices. Then everything has to go by the book because in the end, I’ll be the one who is responsible for the books.

At my opinion the accountants of Enron crossed the line much too far. In the case of Enron the stakeholders’ imprisonment is justified because their actions are unacceptable and the consequences too severe.

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