Enron-Case-Study

EnronCaseStudyCuiMinjie15620101151932SongFang15620101151937SunLu15620101151975ContentKeyProblemKeyIssuesOurAnalysisRecommendationsandAspirationsKeyProblemAstrategyofrapidgrowth,tobeworld’slargestenergycompany,causedmanybadimplications,includingthefraudandcheatingandthebankruptcyatlast.KeyIssues1.Deregulationofthegasindustry.2.“MarktoMarket”accountingandpresentationoffinancialreport.3.UsingSPEtohidetheliability.4.CaliforniaenergyshortagemakethecitizensresentedEnron,damagingEnron’ssocialreputation.5.Skilling’sabruptresignationinSep,2000.6.SurprisingfinancialannouncementsinOct,2000.7.DynegyterminatingdealwithEnron.OurAnalysis1:CorporatecultureItcan’tbedeniedthatEnronisdemisedbyitsculture.Besides,itscultureisaffectedbyitsleaders,suchasKennethLay,JeffreySkilling.Thefailureofthebusinesstransformation,presentingasEnronbroadbandService’spoorperformancein2001causedconcernthatEnron’ssharepricewasovervalued.OurAnalysis2:EthicsBecauseofthedifferencebetweenthelawandtheethics,theethicsdoesn’thaveacompulsoryeffectasthelaw,itsinfluencedependslargelyonthecompany’sownfreewilltocomplywith.WecanseefromtheEnroneventsthatthestrategyofcompanygrowsfrom“aggressive”to“deceptive”,drawupfalseaccountsandreportthevirtualrevenue.OurAnalysis2:EthicsJustbecauseatthattimetherewasnoformallawtorestrictthecompany’sbehavior,sowecandonomorethancondemningthecompany’simmorality.Inaddition,thegreedyofManagementlayeralsoaccountsforthescandal.TheirIgnoranceofbusinessethicsleadsEnrontofall.OurAnalysis3:IndependenceEnron’sbankruptcyalsoaffectedmanyleadingfinancialinstitutionswhowerealsocaughtupinthewebofdeceitandfraud.ArthurAnderson,theleadingBig-5accountingfirmfiledforbankruptcytoo.Theoutsidefinancialinstitutionsshouldbeindependenttosupervise,auditandgivereliableinvestingsuggestionsonEnron.Instead,theyallactonthebehalfoftheirownandbecomeassistantsofEnron’scrime.OurAnalysis4:SPEEnronobscureditsrisk,usingSPEstohidedebtinthebalancesheetandmadeprofitsbysellingbadassetstotheseentities,ofcourse,farbeyondthemarketvalue.WecouldnottellwhenEnronsetupthefirstSPE,butwearetoosurprisedtoseehowcomplicatedtherelationshipsofthemwhenthesehidingcompaniesweredisclosedatlast.TheappearanceofconflictsofinterestinthepartnershipsdamagedEnron’scredibilityonthemarket,thusleadingtoacredibilitycrisis.OurAnalysis5:mark-to-marketTheuseof“mark-to-market”accountingmeasurementallowsEnrontoadvancetherevenueandtheprofitatthetimeofsigningthecontract.Someoftherevenueturnouttobevirtual.OurAnalysis6:NotonetimeeventWorldcomscandal：Recharacterizeitsoperatingexpensesascapitalassets.Xeroxscandal:Guangxia（Yinchuan，China）collapseRecommendationsandAspirationsAsweknow,followingtheEnronscandal,SOXAct,anactaimingtoprotecttheinvestorsbyimprovingtheaccuracyandreliabilityofcorporatedisclosurewasenacted.Strengtheningsupervisionandcontrolcannotmerelyrelyonindependentaudit.Weoughttotrustmarketefficiency,butwealsoneedtounderstandthatgovernmentsupervisionisinevitable.Theintegrityofall-roundeducationisessential.