Trinity Western University
Langley, BC, Canada
The recent Enron collapse has sent shockwaves
all over the financial world and raised serious questions regarding
corporate governance: How could America's seventh largest corporation
suddenly descend to
Trinity Western University
Langley, BC, Canada
The recent Enron collapse has sent shockwaves
all over the financial world and raised serious questions regarding
corporate governance: How could America's seventh largest corporation
suddenly descend to bankruptcy? What has contributed to its sudden
implosion? Currently, there are more than 10 separate committees
investigating possible wrong doings and illegal activities, such
as fraud and insider trading.
Available information suggests that Enron made
its money with smoke and mirrors. With a set of off-the books, unregulated
private partnerships to take on debts, hide losses and kick off
inflated revenues, Enron executives were able to keep bond-rating
agencies happy. They were able to sustain this shell game through
persistent refusal to disclose to analysts, who questioned where
the money came from. Arthur Anderson, the auditing firm, turned
a blind eye to questionable accounting practices because they did
not want to lose the lucrative consulting fees.
However, under mounting pressure, Enron's eventual
disclosure of its overstatement of profits in November 2001 immediately
triggered the collapse of the company and its bankruptcy filing
on December 2, 2001.
A special panel of Enron's Board recently issued
a 217-page report, condemning Enron's management for inflated profit
reports and failure of controls at every level. According to Eichenwald
(2002), "As oversight broke down at Enron, the report states, a
culture emerged of self-dealing and self-enrichment at the expenses
of shareholders. Accountants 