Research on Enron Corporation and Arthur Andersen

 1.0   Research on Enron Corporation and Arthur Andersen

1.1 The background of Enron Corporation & Arthur Andersen

Enron corporation, is one of the largest natural gas communication networks in North America, over 36,000miles, in calculation to being the largest marketer of natural gas and electricity in the United states, the company was on chance most original in the united states listing for several years running and reaching #7 on the fortune 500 list in 2000, also bankruptcy in December 2001 was the largest such stuffing in US history. TX hires around 21,000 people by the middle of 2001, instead it became the biggest corporate failure in history. Arthur Andersen, is former partners at Enron, which discover its history back to 1913, and investigation into coating up billions in losses at the energy firm, the accounting firm that once calculate itself as one of the world’s “big five” until its lawbreaker handing of the energy company Enron led it downfall, have bought the rights to the Andersen name. Enron story ranks as one of the biggest corporate crime of all time, and it may end up to material losses for shareholder and many thousands of job losses. Arthur Andersen’s death is now more than 20 partners is now one of the America biggest tax firms, and does not do any audit work.

1.2 The events which led to the fall of Enron.  

 In early of 2001, the boss of the company which has a good reputation in the short-term investment agency publicly expressed doubts about the profit model for Enron. He noted that while Enron's business looks very brilliant, but in fact does not make much money, and no one can say clearly Enron is how to make money. According to his analysis, Enron's profit margin of 5% in 2000, to the beginning of 2001 dropped to less than 2%, for investors, the investment return rate is only about 7%. The boss also noted that some of the documents are related to the Enron partnership companies, which have a behind the scenes with Enron. . However, as Enron CEO Skilling has been thrown in the hands of Enron stock and he constantly claimed Enron's stock will rise to $ 126 from about $ 70 at the time. Perhaps it is sparked suspicion  for Enron, and began to pursue profitability and cash flow of Enron.

2.0 Business risks and how such risks increased the likelihood of material misstatements

Enron face most of the risk ordinarily faced any energy company, including price instability and foreign currency risks. Enron operated in many different areas of the world with different regulatory and political risks.

The speculative nature of Enron exposed the company to much additional risk, which created pressure to adopt aggressive financial reporting practice. Enron acted as a broker of speculative energy futures, offered financial hedges. Further many of Enron’s deals (including the SPEs) depended heavily on a high and raising stock price. The company had guaranteed its obligations with stock and had contractually agreed that those obligations would become immediately due and payable if the stock price fell below certain levels. If the company were to report poor or deteriorating results its partners might begin to question the company’s ability to meet its obligations and consequently refuse to do business with the company.