The Smartest Guys In The Room
Manpreet Arora
The Smartest Guys in The Room
BAT4M Patel
The Enron Scandal, one of the most controversial events to ever take place in the corporate world. Enron was once one of the top ten corporations in the world, but by committing unethical practices and numerous accounting violations, Enron became worthless in a matter of months. Enron was a Texas based energy company, providing products and services like electricity, natural gas, communications, and pulp and paper. At one point, Enron hired a new CEO named Jeffery Skilling. Jeff had an MBA in business from Harvard University. Jeff Skilling would only join Enron on one condition. Skilling wanted to adopt Mark to market Accounting over traditional accounting for the struggling company.
Mark to market accounting is a way of valuing assets based on how much they could sell for under current market conditions. Mostly banks and financial institutions use this method. However, Enron, an energy company, also used this method. But Enron wouldn’t use it for current market conditions. They instead would use it for booking potential profits on future projects that Enron was working on. For example, Enron once signed a contract with Blockbuster for $110 million, but Blockbuster withdrew from the contract due to the new stigma surrounding Enron and how Enron’s systems weren’t efficient enough for Blockbuster. Enron wasn’t paid by Blockbuster because the contract fell through, but they still booked a profit of $55 million. Using mark to market accounting, Enron is now “Cooking their books”, meaning they are manipulating financial statements by accounting incorrect values for the corporation. Enron can make their profits what they want it to be. This caused Enron to seem like a very profitable company, and caught potential investor’s attention. Using this accounting method, the shares of Enron soared, and Enron raised even more capital. But what was really happening is Enron was
The Smartest Guys in The Room
BAT4M Patel
The Enron Scandal, one of the most controversial events to ever take place in the corporate world. Enron was once one of the top ten corporations in the world, but by committing unethical practices and numerous accounting violations, Enron became worthless in a matter of months. Enron was a Texas based energy company, providing products and services like electricity, natural gas, communications, and pulp and paper. At one point, Enron hired a new CEO named Jeffery Skilling. Jeff had an MBA in business from Harvard University. Jeff Skilling would only join Enron on one condition. Skilling wanted to adopt Mark to market Accounting over traditional accounting for the struggling company.
Mark to market accounting is a way of valuing assets based on how much they could sell for under current market conditions. Mostly banks and financial institutions use this method. However, Enron, an energy company, also used this method. But Enron wouldn’t use it for current market conditions. They instead would use it for booking potential profits on future projects that Enron was working on. For example, Enron once signed a contract with Blockbuster for $110 million, but Blockbuster withdrew from the contract due to the new stigma surrounding Enron and how Enron’s systems weren’t efficient enough for Blockbuster. Enron wasn’t paid by Blockbuster because the contract fell through, but they still booked a profit of $55 million. Using mark to market accounting, Enron is now “Cooking their books”, meaning they are manipulating financial statements by accounting incorrect values for the corporation. Enron can make their profits what they want it to be. This caused Enron to seem like a very profitable company, and caught potential investor’s attention. Using this accounting method, the shares of Enron soared, and Enron raised even more capital. But what was really happening is Enron was