Synopsis

Fortune magazine named Enron America’s “most innovative” company six consecutive years. Enron’s innovation led to phenomenal growth. Revenues increased from $13.3 billion in 1996 to $100.8 billion four years later. But on December 2, 2001, Enron filed for Chapter 11 bankruptcy protection. The company had been accounting for its energy contracts and special purpose entities in ways that were certainly innovative but not entirely admirable. More than two dozen Enron executives were indicted on charges of conspiracy, fraud, and insider trading.

Discussion Questions

1. In what ways did Enron violate accounting rules for special purpose entities?
2. How did Enron’s use of mark-to-market accounting give executives the ability to manipulate quarterly earnings?
3. What events led to Enron’s collapse?
4. What was Arthur Andersen’s rationale for concluding that $51 million of known misstatements in Enron’s 1997 financial statements were immaterial?
5. According to Andrew Fastow’s testimony, how did Enron manipulate its reported earnings through trades with the LJM partnerships?

Additional Resources

Report of the Special Investigative Committee of the Board of Directors of Enron Corporation, 1 February 2002.

Bigger Than Enron. Selected scenes from the PBS television show “Frontline” describing the accounting fraud at Enron (21:15 minutes).

Smartest Guys in the Room. Based on a book with the same title, this award-winning documentary film examines Enron’s aggressive corporate culture (1 hour, 49 minutes).