Now or Never

Enron, one of the worlds’ top natural gas, communications companies, shocked the world in 2000 with its accounting scandal, leading to its own bankruptcy. Such incident exemplifies the consequences of accounting misconducts.

The man behind the misdemeanours, Jeffrey Skilling tried to hide Enron’s debts through false financial reports, by keep the revenue high and the liabilities low, the exact opposite of the conservative model we study in COMM 293 and 486G. During company sharehold trading, Skilling tempered around with the firm’s revenue recognition process. While firms like Goldman Sachs stick religiously to the conservative method by reporting the trading and brokage fee as their revenue, Enron counted the value of all its trade as revenue, an aggressive tactic, which is, as taught in our classrooms, “extreme risky “. SURPRISINGLY, as much as Enron tried to cover its debts, the liabilities eventually caught up, dropping the stock prices from $90/share to $1/share, a loss of $11 billion belonging to the shareholders.

From Enron’s case, sometime it seems tempting to adapt an aggressive style in recognize revenue; however the risky associated could outweigh the potential. Just look at Goldman, these guys might be conservative, but at least they are still around.

Here’s a helpful link: http://www.cbc.ca/news/background/enron/

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