Accounting Scandal Essay Example | Topics and Well Written Essays - 1000 words

Accounting Scandal - Essay Example Due to Enron’s scandal, the core principles of auditing have dynamically changed. This paper will seek to portray the keen principles of Enron’s root cause of its downfall and the potential impact it made that has crippled other companies. Choose an accounting scandal (from the link below) and summarize it.   http://www.forbes.com/2002/07/25/accountingtracker.html   Please include the following in the summary:   1) A brief description/background of the company.   One of the biggest frauds that has ever taken place in the modern 21st century commerce was the case with Enron. Enron’s scandal without a doubt has been the focal point for one of the biggest busts in the history of American entity. The Enron Scandal and the Neglect of Management Integrity Capacity Enron was a very prosperous and prominent firm that was an American energy company established in Houston, Texas. Enron was formed in 1985 by Kenneth Lay after he had acquired two other gas companies in his quest to become a conglomerate in the American history. Nonetheless, after Enron’s biggest scandal, shareholders lost around $11 billion as the company continued on the downward spiral. Enron finally filed for bankruptcy at its $63.4 billion in assets were completely diluted. Many of the stockholders got measly pennies back for the huge investments they had in the company. 2) When the scandal was (or is believed to be) formed.   ... The continuous spiral of modifying the financial statements became a continuous habit and the lead cause of the downfall for the company. Undoubtedly, managers in corporate America have to protect the interests of the corporate executives along with the goals of the stakeholders. The management clearly neglected responsibility of overseeing the unethical practices that were plaguing the corporation. The Enron scandal continued to grow worse every year as it became a problem that was out of control. The primary motivation for Enron was to keep their gross income high along with cash flow while diminishing their liabilities and long-term debts. 3) An in-depth analysis of the accounting scandal.   As mentioned before, Enron ran a Ponzi scheme that continued to over-inflate the revenues that they were actually earning. Enron and other energy suppliers earned sales by providing services such as electricity, natural gas and providing other risk management products. Traditionally, compani es similar to Enron such as Goldman Sachs and Merrill Lynch used simple pure â€Å"brick and mortar† model for reporting income. However, Enron took upon a new model known as â€Å"the merchant model.† This model was however not adapted by Enron as they utilized the merchant model, which was aggressive, risky and was based on a subjective representation of revenues that were estimated. Although the system did thrive as Enron continued to promise huge compensations for its executives, it also lead to the downfall for the company. For instance, the company’s revenue from 1996 to 2000, Enron’s revenues were grossly inflated to be increased by 700%. This extensive inflation was highly unjustified as the market for