How Enron Fraud Enron has involved in several illegal and unethical actions that all combined together

caused it collapse in a very short time. Enron has a lot of special purpose entities to hiding its financing debts and reveal only bright side of performance that misleading investors. Firstly, its debts and the losses were not reported in its financial statements because much of its profits and revenue were deals with special purpose entities. Hence, it caused balance sheet understated liabilities and overstated its equity& earnings. Example is White- winged Dove that bought assets from Enron but transfer of assets is not true and should have been treated as loan due to financing from this special entity. It reflect by behavior of Andrew Fastow CFO of Enron, he creates a network of shell companies designed solely to do business with Enron for dual purposes of sending Enron money and hiding its increasing debts. He has a vested stake in these ventures and using them to defraud Enron millions of dollars. Fastow also using Wall Street Investment banks whos invested its entities and conduct business deals with him. It is a manipulation by top executives toward financial performance data. Enron seeks to beguile stock market analysts by push up stock prices and then cash in their multi- million dollar options in a process called pump and dump. Besides, it portrays itself through public- relation campaign that it is a profitable and stable while worldwide operations are performing poorly. One of the method used is it records nonexistent profits for its ventures using Mark- to- market model accounting. It requires once a long term contract was signed, income is estimated as the present value of net future cash flow. Analysts being given misleading reports due to difficulty of estimation on contract costs and variables during their analysis job performed. This treatment will show higher level of profit and cash of Enron compared to actual situation. Example is Enron and Blockbuster Video that provide Enron recognized more than $110 million although it is actually a loss after withdrew of Blockbuster from the contract. Besides, revenue recognition of Enron are differ from conventional agent model instead report revenue using merchant model that will largely increase its revenue. The snowball is booking costs of cancelled projects as assets with rationale that no official

letter had stated the project was cancelled. Throughout these actions, Enron show a better profit and financial achievement compared to other competitors that actually it doesnt means that. Lastly, Arthur Andersen is the accounting company that audit Enron. It found guilty on obstruction of justice during year 2002 that destroying documents related Enron audit. Enrons complicated financial statements were confusing shareholders and analysts. Besides, there were unethical practices required company use accounting limitations to misrepresent earnings and modify balance sheet to show favorable performance. Below are some scenes showing Enron dark side. Chairman [Lay] doesnt take action to restrict the action of Skilling and Fastow. David Duncan is Enrons chief auditor that shredded key documents relating to the fraud. Lou Pai is the CEO of Enron Energy Service who used the money of shareholder to feed his own obsessive habit of visiting strip clubs. He used the divisions loss of $ 1 billion to cover the money he spent. All of these happened and discovered only a long time but not immediately due to manipulation by top management.