On December 2, 2001, Enron Corporation of Houston, Texas and 13 of its major subsidiaries filed for Chapter 11 bankruptcy in a New York court. With assets of approximately $49.53 billion and reported revenues of over $100 billion, Enron was the largest bankruptcy in U.S. history. What separates Enron from most cases, however, and will forever enshrine the company into history was the magnitude of arrogance, mismanagement and fraud that not only let to its downfall but also that of its Big Five auditing firm, Arthur Andersen. Ten of Enron's former executives, including its CEO, CFO and Chief Accounting Officer, went to prison. The lessons of Enron must never be forgotten. Enron Lesson No.1: Beware of Mark-To-Market (Fair Value) Accounting
First in a 10-part series.
Abuses specifically related to mark-to-market, or fair value, accounting helped to facilitate the fraud and deceipt that occurred at Enron. Although gaining in usage, mark-to-market accounting can be easily manipulated as lesson No. 1 in this 10-part series documents.
On January 30, 1992, a champagne celebration took place on the thirty-first floor of the Enron corporate office in Houston, Texas. No, the celebration wasn't for a record quarterly or annual performance. Not even to commemorate an executive retirement or achievement. No, this celebration -- enjoyed by Jeffrey Skilling and 50 or so of his employees -- took place after the SEC notified Enron that it would not object to its use of mark-to-market accounting.
Please continue reading as this first in an exclusive 10-part series discusses the strenghts and weaknesses of mark-to-market accounting and how Enron's move to this so called value-based form of accounting laid the ground work for the largest corporate fraud in United States history.
