Module 1 : Enron Case Study Flashcards
(14 cards)
What does Enron exemplify?
Enron exemplifies the facade of good compliance and corporate governance without substance.
Who comprised Enron’s board of directors?
Enron’s board was mostly company outsiders with significant equity stakes, intended to align their interests with public shareholders.
What was Enron’s primary business?
Enron was initially an energy trading company based in Houston, Texas, matching buyers and sellers of natural gas.
What types of trading did Enron expand into?
Enron expanded into coal, electricity, metals, and even weather trading.
What was the purpose of Enron’s special purpose entities (SPEs)?
SPEs were used to hide debt and keep certain business ventures off Enron’s balance sheet.
What was the impact of Enron’s financial practices?
Enron’s practices allowed them to avoid incurring losses on their financial statements.
How did Enron create the illusion of success?
Enron built a fake trading floor and staged rehearsals to impress investors and analysts.
What significant article questioned Enron’s valuation?
Bethany McLean wrote an article for Fortune magazine titled ‘Is Enron Overpriced?’
What major event occurred in October 2001?
Enron announced it was restating three years of financial statements due to accounting violations.
What happened to Enron in December 2001?
Enron filed for bankruptcy, marking the largest bankruptcy in U.S. history at that time.
What was a major consequence of Enron’s bankruptcy?
20,000 Enron employees lost their jobs and retirement accounts, which were largely in Enron stock.
What legislation was passed in response to the Enron scandal?
The Sarbanes-Oxley Act was passed in July 2002 to prevent accounting fraud and protect shareholders.
What are some key provisions of the Sarbanes-Oxley Act?
It requires internal controls, management certification of financial statements, and strengthened whistleblower protections.
What compliance lessons can be learned from Enron?
Many involved knew the actions were wrong, raising questions about the culture of dishonesty and accountability.
