Background

Before its collapse, Enron marketed electricity and natural gas,

delivered energy and other physical commodities, and provided financial
and risk management services to customers around the world. Enron is
formed by the merger of Houston Natural Gas and Omaha – based InterNorth
on July 1985. Enron was once ranked the sixth-largest energy company in
the world. However, cracks began to appear in 2001. In August of that
year, Jeffrey Skilling, a driving force in Enron's revamp and the
company's CEO of six months, announced his departure, and Lay resumed
the post of CEO. In October 2001, Enron reported a loss of $618 million—
its first quarterly loss in four years. On Dec. 2, 2001, Enron filed for
bankruptcy protection in the biggest case of bankruptcy in the United
States up to that point. (WorldCom's collapse would later steal that
dubious honour.) Roughly 5,600 Enron employees subsequently lost their
jobs. And the findings was that the company falsified its financial
information to hide its bankruptcy and entice stockholder into still
investing them.

1. Why did Enron falsify its financial information?

- There are three factors that led Enron Company to its downfall
despite of being the largest energy company in the world. First
is being arrogant, then being unethical and lastly is being
aggressive. The firm only want to gain profit and they did not
think about their employees. They only want what is best for
them and push the employees to do it without compensating them
equal to their performance which pushes them to the edge. And
another is they are spinning off their asset without declaring
it to hide the real status of their company. So what is the
reason of falsifying their financial statement? Simply because,
they aimed to show that Enron was steadily growing and attract
investors to trust them. But in reality, Enron was making bad
investments and recognizing non-existent revenue. The schemes
hid the fact that the company’s cash flow was terrible and did
not deserve an investment-grade credit rating. Ultimately, the
manipulation of the financial statements helped Enron’s stock
price to grow from $30 per share in early 1998 to more than $80
per share in early 2001. Even when the stock price started to
fall, executives slowed the fall by continuing to manipulate the
financials. That led to its bankruptcy, because they can’t
justify their financial position during that time. And made them
decide to let the people know the truth about their status.

2. What is the impact of their action to the stockholder and the

general public?
- The Enron Scandal made a great impact that shook the world. And
the name Enron equals the term “fraud” up to these days. One of
 the effects of this scandal is that, thousands lost their jobs
and their retirement funds. Investors lost millions. The effects
went beyond money. The trust of the investment community and the
public at large was violated. And also some companies were
affected by this scandal, because new accounting regulation was
created which is the Sarbanes – Oxeley that cost the public
millions of dollars. And external auditors were doubted, because
many people think that these auditors were neglecting their
responsibilities and duties.

3. What lesson could be learned from the downfall of Enron?

- The Enron Scandal would remain in the history forever and would
serve as a lesson to every company who are tempted to do
unethical things. It’s hard to believe there is a good thing
that can be gained from its downfall. But there is a saying that
tells that mistakes are part of learning and this became a
valuable by-product of the company’s downfall. People now
learned to check first the business status or background if the
business is legally operated and under the provision which
subject to the provision and registered with the appropriate
agency. With the implementation of the Sarbanes – Oxeley of
2002, companies have had an opportunity to re-evaluate their
processes and their controls over financial reporting. Companies
have been forced to improve the controls surrounding their
accounting systems, and certainly this helps make financial
information more reliable. Most importantly, the collapse of
Enron brought attention to the closely related issues of
financial statement fraud and fraud by executives. Good
corporate governance has become a priority for many companies,
and the focus on ethics and integrity in financial reporting has
helped increase investor confidence in some companies.
Business Policy
and Strategy
Enron Company
(TASK PERFORMANCE)

SUBMITTED BY:

ABAGAT, WINDRIEL M.
NONES, MONICA CHRISTIANNE M.

SUBMITTED TO:
MRS. TERESITA BASIÑO