Imagine yourself as a stockholder of Enron stock. Your stock value has been on the rise and is now up to over 90 dollars a share when all of a sudden, your share value drops below one dollar. This happened to thousands of shareholders when Enron misinterpreted the real values of there assets, liabilities, and shareholders equity on their financial statements, making Enron look, as if, it were making more money than they really were. They changed these values for a long enough period of time to where they were so far behind on their financial statements that the only way out of this was bankruptcy. What were the causes of the collapse of Enron. Kirk Hanson, executive director of Markkula Center for Applied Ethics, stated that Jeffrey Skilling (CEO of Enron at the time) and Andrew Fastow changed the business strategy of the company and by doing so, they hid the real numbers from the public and made the company look like it was extremely profitable and proficient. David Duncan was the auditor for the company, but when he audited the financial reports he ignored the misleading numbers. After a period of time Enron dug themselves so deep that there was no way out but bankruptcy. How did this scandal effect the businesses in the United States?

It takes many smart people to run a scandal like this and there were three main employees of Enron that were involved. Jeffrey Skilling was the brains behind the operation. It was his own business strategy that tricked investors into believing that Enron was a healthy and successful company. Kenneth Lay was another one of the main players. He was the CEO of Enron before stepping down so Jeffrey Skilling could take his place before returning to his CEO position. The third main Enron player of the scandal was Andrew Fastow. Fastow was the Chief Financial Officer (CFO) of Enron. According to “A Look, ” He was found guilty of 98 counts invovling fraud, conspiracy, inside trading, and money laundering, and afterwards he testified against Skilling and Lay. David Duncan was the final key player in the Enron scandal. He was Enron’s main accountant and all the financial statements went through him. According to “A Look,” Duncan was found guilty of obstruction of justice, by destroying financial statements that would have led to the conviction of Enron. His conviction was later overturned because the judge felt the jury did not explain completely in there conviction instructions.

There were some major changes for businesses after the Enron scandal. One of the biggest changes was the Sarbanes Oxley Act of 2002. After the Enron scandal the Securities and Exchange Commission had to get a tighter grip on companies financial reports. The Sarbanes Oxley Act consisted of 11 different parts, but there are the six main sections that you should focus on. First, the CEO and CFO of the company must certify in writing that their financial statements are filled out correctly to the best of their knowledge. Secondly, the act created the Public Company Accounting Oversight Board which investigates and punishes auditing firms that do not follow the Generally Accepted Accounting Principles. The third part gives the power to hire, fire, and compensate accounting firms that audit company’s financial statements. Fourth, the act put more regulations on auditing firms and they are no longer allowed to provide consulting services to the company they are auditing. Fifth, the company must provide an internal control which will assure shareholders and future investors that the financial disclosures are accurate. Lastly, the act states that penalties up to 20 years in prison may be handed out to anyone involved in altering or destroying any documents that might lead to the prosecution of a company. Another big change for companies is that they lost the trust of their investors. Before the Enron scandal, companies could choose any qualified auditor to audit their comapny. Now there can be no close ties with the auditor of a comapny. Companies must also state which type of accouting system they are using in their annual financial report. Now investors can see what type of system they are using and base their investing decision off that.

This scandal has also been explained in a movie called The Smartest Guys in the Room.

The Enron scandal was unraveled in October of 2001. It caused stockholders to lose billions of dollars. Enron was audited by Arthur Andersen’s accounting firm which was one of the largest accounting partnerships in the United States. Andersen and everyone else who was auditing Enron’s paperwork had ignored multiple problems with the financial statements which made Enron look as if it had made a good some of money. That caused stock prices to rise higher than they have ever been. After the scandal was discovered stock prices dropped below a dollar causing the stockholders to lose billions of dollars. The Sarbanes-Oxley Act of 2002 was created shortly after the Enron scandal was discovered. The act protects shareholders and the general public from accounting errors. There are three main parts of the Sarbanes-Oxley Act of 2002. The first part explains that anyone who knowingly alters or falsifies an entry on a financial statement can be sentenced to jail for up to 20 years, fined a large sum of money, or both. The second part of the Sarbanes Oxley Act of 2002 requires the auditor of any financial statements to keep records of the statements for five years. The third and final part of the act is that the Securities and Exchange Commission has the power to create some rules and regulations regarding the types of business documents that need to be stored.

I would like to research more about the people involved in this scandal, where they are now, and some more specific numbers in how much was lost due to this scandal.