Understanding The Enron Scandal: An Essay On Fraud And Consequences.

The most innovative company of America, Enron has been a name which were prominent to the history of US energy industry. The company has initially mentioned that the accounting policies of the company were apt and there was no loophole in the same. However, the firm were bankrupt when it is discovered that the company were through various financial crimes and inappropriate accounting policies (Bhaskar, Flower & Sellers, 2019).

Enron used mark to market accounting method instead of traditional accounting method which resulted in change in fair value of accounts over time. The executives of Enron have been found to use different types of fraudulent accounting policies to enhance the revenue of the company and to lower its debts. This fraud has been violated several accounting policies which entails the off balance sheet arrangements and the manipulation of derivative instruments (Rashid, 2020). The same had significant impact on the financial situation of the company which also has fuelled the fraud event of the company.  

Companies may use ERP to ensure that they are following legal and accounting laws. Exploitation of the accounting system is the root of many examples of internal fraud. ERP can help firms avoid fraud by preventing this kind of misuse. For prevention of any future fraud event, sound internal control system is necessary in every organisation. Proper accounting policies are required to be implemented within the company and sound audit procedure should be followed to ensure that there are no suspicious amount of earnings or misstatement present within the financial statement of a company.  An external auditor must be present and work cooperatively with the internal auditor to ensure that every receipts are properly recorded and balanced. This will prevent any future fraud event in a organisation.

References

Bhaskar, K., Flower, J., & Sellers, R. (2019). Financial failures and scandals: From Enron to Carillion. Routledge.

Rashid, M. M. (2020). Case analysis: Enron; Ethics, social responsibility, and ethical accounting as inferior goods?. Journal of Economics Library, 7(2), 97-105.