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Enron’s Scandal And Laws Passed By Us Congress To Deal With Such Failures

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Enron was one of the largest US-based companies formed by Kenneth Lay in the year 1985. It has become an interstate and intrastate natural gas pipeline company. It offered its services to thousands of customers around the world. Enron had three main business units ranging wholesale service, retail energy service, broadband service and transportation. The wholesale service responsible for the marketing a number of wholesale commodity product, allowing industrial companies to manage commodity delivery and price risk (Enron: The Fall from Grace/ The World’s Biggest Fraud).The energy service which is also an arm of Enron offered companies a better way to develop and execute their energy command to commercial and industrial companies. The Enron first oversea was in England, to start construction of power plants; later the electric industry in the UK was privatized. The Enron went on opening hands in India and other part of the world. According to sources, it was one of the world’s leading electricity, natural gas, broadband and transportation companies whose annual revenue rose from 9 billion to 100 billion within the shorter period of years before its bankruptcy in late 2001 (Li, 10 October 2010). The Enron trading strategy was to future market strategy; where by buyers and sellers to get what they hope will be better deal on commodity price than they would do on the open market.


To start the management arm of the Enron which begin Kenneth Lay as Chief Executive in 1986 after the two pipeline firms in Texas and Nebraska. Jeffrey Skilling was the president and Chief Operation Officer from 1990 and he was seen as a chief architect of the gas- trading strategy of the cooperation. Andrew Fastow was the chief financial officer and allegedly responsible for engineering the off-balance sheet partnerships that allowed Enron to recover its losses. Fastow was accused to put together complicated set of transaction and earning on management fee with Enron salary .Another leader was Clifford Baxter who committed suicide in January 2002; he was known to been one of the Enron Executive and had opposed its creative accounting practices (Seied Beniamin Hosseini, August, 2016).

Rectitude is the characteristic of accountant and which stakeholder relies to make major decisions in their institutions. If any work of an accountant fails his responsibility may leads to a lot of lost in the financial system. Arthur Andersen was one of the world’s five leading accounting firms. It was Enron auditing firm as well as consultant since 1986, to help on where their accounts are going (Seied Beniamin Hosseini, August, 2016). As Arthur Andersen been the Auditing and Consulting firm of Enron for about 16 years earning millions of dollars for their services should have be a guide to avoid such malpractices (Introduction to Behavioural Finance). It was known to the people that Arthur Andersen employee over thousands in the workforce during their time.


One will ask him or herself, how can Enron fail? An institution that operate in over 40 countries with more 20,000 workers and they lost their pension with other benefits. Primarily, Enron’s Executive Board refused to accomplish its fiduciary obligations towards the company’s investors. Furthermore, the highest officials of Enron were selfish and do things in their own personal-interest. Again, majority of Enron’s personnel perceived the misconducts of Enron’s highest officials, and relatively few informers came forward. Finally, Enron subcontracted external auditing for its own internal audit instead of creating a functionally internal audit instrument and its external auditor accepted in the claim of dubious accounting and fraudulent monetary reporting (Cuong*, 2011).


Lack of truthfulness by administration about the wellbeing of the corporation, in reference to Kirk Hanson, the senior management of the Markkula Center for Applied Ethics. The senior managers assumed Enron had to be the top at all it did and that they had to defend their statuses and their return as the best positive directors in the U.S (Li, International Journal of Business and Management, October 2010).

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Conflicts of interest been recommended at Enron and absence of free omission of executive by Enron's board contributed to the company's failure. Additionally, others have recommended that Enron's incentive policies produced a biased emphasis on remunerations development and stock price. Moreover, current controlling modifications have absorbed on improving the accounting for SPEs and consolidation inner accounting and other mechanism (Li, International Journal of Business and Management, October 2010).

Enron and the reputation of Arthur Andersen

The exposure of accounting abnormalities at Enron during the third quarter of 2001 initiated supervisors and the media to emphasis wide care on Andersen. The scale of the suspected accounting errors, joint with Andersen's act as Enron's auditor and the common media consideration, offer apparent influential context to seek the effect of auditor standing on consumer market prices around an audit catastrophe (Li, The Case Analysis of the Scandal of Enron, 10 October 2010).


In the fictional event of Enron and Andersen does not finish with the death of these two corporations. Key changes in the rule of public enterprises and their auditors have happened in the outcome of, and mostly caused by these failures. Whereas there could have been extra effects, example other commercial scams and a speedy histrionic failure in the trading, that steered the overall public suspicion of commercial executive, absolutely the greatest significant factors in the implementation of the Sarbanes regulation and some reactions were the commercial governance catastrophe at Enron, which damages public sureness in the sovereign audit occupation causing Andersen’s failure.

The U.S governments come up with Sarbanes-Oxley Act in 2002 as a federal law that was developed to brush auditing and monetary rules for public enterprises. Policymakers formed these regulations to help safeguard investors, workers and the people from accounting mistakes and fake monetary practices.

Key provision

  • Oversight board: The Public Company Accounting Oversight Board has the power to establish values concerns with auditing, integrities, excellent control, freedom and other actions linking to the planning of audited monetary reports (Spiceland).
  • Corporate executive accountability: Business managers must personally confirm the enterprise’s monetary statements and monetary revelations. Strict monetary punishments and the chance of sentence are magnitudes of falsified misstatement (Spiceland).
  • Non-audit services: The situation is illegal for the auditors of public enterprises to also implement certain non-audit services for their customers, such as consulting. (Spiceland)

Other components are as follows

  • i. Corporate Responsibility.
  • ii. Enhanced Financial Disclosures.
  • iii. Analyst Conflicts of Interest.
  • iv. Commission Resources and Authority.
  • v. Studies and Reports.
  • vi. Corporate and Criminal Fraud Accountability.

To my recommendation and conclusion, the management was not straight forward to its stakeholder; there was conflict of interest in the company. It was wrong to offer dual contract to the audit firm because the errors are not going to be known to the external party. Sarbanes-Oxley Act in 2002 should be been implemented before the establishment of Enron and similar businesses in order to avoid such scandals.


  1. Cuong*, N. H. (2011). FACTORS CAUSING ENRON’S COLLAPSE. Corporate Ownership & Control, 1.
  2. Enron: The Fall from Grace/ The World’s Biggest Fraud. (n.d.).
  3. Introduction to Behavioural Finance. (n.d.). Behavioural Finance ,PowerPoint 1.
  4. Li, Y. (10 October 2010). The Case Analysis of the Scandal of Enron. 1.
  5. Li, Y. (October 2010). International Journal of Business and Management. The Case Analysis of the Scandal of Enron, 37.
  6. Seied Beniamin Hosseini, 2. M. ( August, 2016). MORAL AND MANAGERIAL RESPONSIBILITIES. International Journal of Current Research.
  7. Spiceland, T. a. (n.d.). Cash and Internal Controls. Financial Accounting 1st Edition .
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Enron’s Scandal And Laws Passed By Us Congress To Deal With Such Failures. (2022, Jun 29). Edubirdie. Retrieved December 8, 2023, from
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