The Enron fallout: Was Enron an accounting failure?
Abstract
This paper traces the development of Enron Corp. from a regulated natural gas distribution company to a worldwide energy trading company to its ultimate demise in bankruptcy in December 2001. The paper examines whether Enron should be viewed as an accounting failure, with investors and creditors being severely misled by false financial statements, or whether it was a business failure that was obscured by accounting practices that strained the limits of credibility. It is the contention of this paper that astute financial analysis would have revealed the instability of the Enron business model, thereby alerting investors and creditors to the lack of credit worthiness of the company. At the same time, the paper argues that had there been an appropriate level of transparency in the financial statements, investors and creditors would have been provided with a more realistic view of the company’s financial position and its results of operations, thereby facilitating their ability to assess the viability of the company and avoid their bankruptcy losses.
Keywords
Citation
Baker, C.R. and Hayes, R. (2005), "The Enron fallout: Was Enron an accounting failure?", Managerial Finance, Vol. 31 No. 9, pp. 5-28. https://doi.org/10.1108/03074350510769839
Publisher
:Emerald Group Publishing Limited
Copyright © 2005, Emerald Group Publishing Limited