Essay: Largest Example of Corporate Fraud

Sample Essay

The case of Enron is regarded as one of the largest examples of corporate frauds in America. The causes of bankruptcy in Enron include a long history of fraudulent activities and the implementation of mark-to market accounting in recording the mark-to market accounting model to long term contracts. The management did not commit fraud in one or two years but these governance crimes were committed over a very long period of time. The management of Enron was involved in activities which caused the net income, cash flows and assets to be overstated and the value of liabilities understated on the company’s financial statements.

The company hired Jeffrey Skilling as its President and CEO and he instructed the accountants to apply mark to market accounting methods in recording revenues from long term contracts of the company to present relevant values of these contracts to users of financial statements. The mark to market accounting method was widely used in financial institutions whereas Enron was the first non financial company to implement this technique. The mark to market method was implemented in the company to record revenues based on the present value of future cash inflows from long term contracts. Skilling with the help of company CFO Andrew Fastow was able to deceive shareholders and investors by concealing and covering up to millions of dollars of company debt through intentional misrepresentation, special purpose entities and improper juggling of financial transactions.

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