THE LEGAL ENVIRONMENT OF BUSINESS Essay Example | Topics and Well Written Essays - 1250 words

THE LEGAL ENVIRONMENT OF BUSINESS - Essay Example More to the point, Arthur Andersen partnership was also dissolved at the time. Arthur Andersen was one of the five biggest audit and accountancy firms globally during the scandal (Li 37). Enron executives, particularly Jeff skilling as well as Andy Fastow, were key to Enron plunging into bankruptcy as well as ultimately dissolution. The acts include: market to market accounting as well as special purpose entities (SPE’s). None of these acts was illegal; however they were employed in illegal business plans (Mackey and Kristine 349). Enron Corporation was an American company based in Houston, Texas. What's more, Enron being one of the most prominent companies in the globe, it was also one of the companies that collapsed very quickly. Over and above, being the biggest liquidation reform at one time, Enron scandal was undeniably the largest audit letdown in American history (Li 37). This paper examines why the Enron scandal occurred? Whether the investigations into the scandal wer e fair? How the scandal was discovered? What went wrong? And what internal controls failed? Enron Corporation was established in 1985. Enron was as one of the globe's leading company dealing with natural gas, electricity, pulp and communications ahead of being declared bankrupt in October 2001. Enron was nearly universally regarded as one of the country's most innovative companies in the late 1990’s; a new-economy nonconformist that abandoned stuffy, aged industries with their bulky hard assets for the lax world of e-commerce. Enron persistently operated gas lines as well as built power plants, however it gained prominence for its distinctive trading businesses. In addition buying and selling gas plus electricity futures, it established whole new markets for such nonconformist merchandise as weather futures, Internet bandwidth as well as broadcast time for advertisers (Li 37).Very few people were acquainted with precisely what Enron's business was. Bethany McLean, a reporter for Fortune, inquired, â€Å"How exactly Enron made its money?† The question is hard to answer; the "particulars are difficult to get hold of as Enron keeps many of its details secret for what it terms 'competitive reasons.'" a different analyst remarked, "Enron is a big black box." Hence, even Wall Street had very little information about Enron's actual business practices. However, Enron is not unique in this regard. Enron akin to the majority corporations, operated relatively independently by opposing transparency and stakeholder participation (Brenan 35). Jeffrey Skilling proposed market to market accounting is a scheme to increase stock prices, hide Enron’s losses as well as attract new investment. The market to market scheme entailed that once a long-term contract was signed, the amount of which the asset supposedly would trade on the future market is reported as profit in the present financial statement. So as to soothe the investors to maintain a steady profitin g condition at Enron, traders at Enron were forced to predict low discount rate on the long-term contract with Enron as well as high future cash flows. The variation amid the computed net current value and the initially paid value was viewed as the profit of Enron. However it is unfeasible to gain in a long-term operation manner, and so it is evidently illegal furthermore immoral. Additionally, it was reported that the US Security and Exchange Commission (SEC) at the time permitted Enron to employ mark to market account