The Enron scandal, revealed in October 2001, was one of the biggest mortgage swindles in the world. It led to the bankruptcy of the Enron Corporation, a large American energy company based in Texas, and the dissolution of Arthur Andersen, one of the largest international accountancy partnerships. Many executives at Enron were found guilty on several counts of fraud and later sentenced to prison. Enron’s employees and shareholders lost billions of dollars in pensions and stock prices.
Enron’s executives created a virtual company with virtual profits. Revenue and profits were greatly exaggerated. Special partnerships were created to hide its debt. Pressure tactics were placed on its middle managers and on its outside auditor, Andersen, to overlook accounting irregularities.
This scandal illustrated the complete lack of business integrity displayed by Enron’s executives, the poor corporate governance practice by its board and the lack of accountability by its auditor. Greed overcame management duty and integrity. While the business world was shocked and investor confidence was shattered by this scandal, it also had positive outcomes such as the new regulations and legislation that were enacted to increase the reliability of financial reporting for public companies.
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