Fundamentals of Business Managers: Essay

Sample Essay

Words 1,936

“What brought about Enron’s collapse?”
Enron collapse is one of the biggest scandals to hit the financial and corporate world. Facts are adding to the fact that the Houston-based group, which boasted of being asset-light, may also have been light on success at hub operations. A mixture of aggressive accounting, off-balance-sheet deals, and browbeating of employees and advisers, allowed Enron management to generate a virtual company with virtual profits.

Investment partnerships were one of the reasons of the collapse and the corporation’s reluctance to share the information with the public. Moreover, there was conflict of interest between the various deals too. Enron strengthened profits by booking income immediately on contracts that would take up to 10 years to total. It shifted debts into partnerships it shaped and in effect controlled, even though defined by auditors as off-balance sheet. It used such body to maneuver its accounts at the end of each quarter and employed financial derivatives and other complex transactions assertively to the same end. It masked poorly performing assets with swift deal making.

The group also employed an aggressive tax evasion strategy. According to Citizens for Tax Justice, a Washington advocacy group, Enron’s pre-tax profits between 1996 and 2000 totaled $1.79bn and it received net US federal tax rebates of $381m. In only one year, did Enron pay federal tax at all $17m in 1997?

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