Enron Scandal
Arthur Andersen Firm
What is the Enron Scandal
After the Enron Scandal
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Arthur Andersen Firm
Before moving on to the Enron scandal, it might be helpful to look at what the Arthur Andersen company is.
It was one of the “Big Five” companies, which are considered to be the big five independent audit firms. Of course, now that Arthur Andersen company has gone bankrupt, this concept continues as the “Big Four”.
Arthur Andersen Company was an independent audit firm established in America. It was also a consultant to companies.
Perhaps Arthur Andersen consultancy and auditing of companies could have been one of the reasons why accurate reports could not be published about companies.
Arthur Andersen was a company that oversaw Enron and was a partner in frauds within Enron. After these events were revealed, Arthur Andersen firm was also driven into bankruptcy.
What is the Enron Scandal
In fact, the Enron Scandal is the set of events that led to the bankruptcy of the Enron company.
The Enron Company was an energy-based derivatives company founded in Houston, USA in 1980. Enron was publicly selling its shares. These publicly traded companies, on the other hand, are examined by independent audit institutions and publish reports on the companies they examine.
Investors make analyzes these reports published by independent audit institutions and make their investments accordingly.
In the Enron scandal, investors were also misled because of the false reports of the auditing company, that is, the irregularities in the Enron company were tolerated.
For example, although the Enron company did not make a profit, they showed that the company made a large profit in a short time.
This can be seen from the graph above. An example of this is the increase in stock prices in a certain range. Even the employees could not understand the source of this rapid profit.
As a result, the Enron company went bankrupt in 2001, with around 20,000 employees. Two of the top executives in court in the Enron process were Kenneth Lay and Jeffrey Skilling.
Jeffrey Skilling resigned and left the company before 2001 before the company went bankrupt. One of the reasons he left was to pretend he wasn’t in that company during the scandal, that is, he tried to show that this scandal happened after he resigned from the job. However, things did not go as he thought, investigations were started.
Jeffrey Skilling was sentenced to nearly 24 years in prison but spent 12 years in prison. During this period, Kenneth Lay died of a heart attack in 2006.
After the Enron Scandal
As a result of the Enron scandal, new regulations were introduced in the field of accounting.
Some of the reasons for this are a few things that were neglected during the Enron scandal. Reasons such as the fact that financial reporting is not done properly, that these reports are deliberately changed and do not reflect the truth, that there is no strict audit, and that the independent audit company does not do its job properly can be counted as reasons such as their involvement in this fraud.
In order to prevent fraud similar to the Enron scandal, the “Sarbanes-Oxley Act” was approved by US President Bush in 2002 and entered into force. This law was a law concerning publicly traded companies and the companies that audited these companies. After this law came into force, the accounting departments of the companies were subjected to a little more strict control.
Because this fraud event in the past made it necessary. If we look at the Sarbanes-Oxley Law, it consists of eleven main titles. These are the headings listed in the table below.
Footnote: Finally, I hope that such incidents will not happen again. As a result of this incident, probably thousands of innocent employees were also affected. While the intensity of influencing people’s lives is so high, it is very important for managers to manage in the right way.
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Resources
https://archive.ismmmo.org.tr/docs/SEMPOZYUMLAR/SEMPOZYUM_06/2oturum/AycaZeynepSuer.pdf
