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The rise and fall of Enron Enron Corporation was an energy trading, natural gas, and electric utilities company based in Houston, Texas that employed around 21, 000 people by mid- 2001, before it went bankrupt. Doubtful accounting methods made it the seventh largest company in the United States, and it was supposed to control the trading it actually created in communications, power, and weather securities. However, it became the largest corporate failure in history, and became emblematic of institutionalized and well-planned corporate fraud. Crash of power company Enron became one of the largest bankruptcies in history of the USA.
After the analysis of the situation was done it became clear that not only the heads of the company were guilty of what happened but the accounting laws accepted long time ago created the conditions for this fraud. Bankruptcy of power concern Enron Corp. appeared to be useful because it led to changes of financial information disclosing rules. Changes of rules of conducting the financial reporting which were created in 80 and 90 th years, led to displacement of priorities of managers from long-term growth of companys profits and expansion of business for reception of short-term benefit. The most unsuccessful was the change by committee of the rules, concerning financial options. As a result, heads began to receive more and more compensations in the form of options for purchase of shares, and their income started to depend on the prices of companys shares directly.
Set of these factors led to attempts to manipulate system of accounting reporting with the purpose to make impression of growth of profits in the short-term prospect contradicting long-term prospects of the company. Security Exchange Commission of the USA, SEC, proposed the change of corporate financial information disclosing rules which were accepted and functioning in 2004 - 2005. In opinion of regulating authorities and legislators of the USA, changes in system of the financial reporting became an absolute necessity in connection with scandalous bankruptcy of Enron Corporation. Accounting shifts and unclear reporting of Enron kept with investors a belief about financial well-being of the company when it already had very serious problems. The thunder burst after the publication of Enron's report for III quarter in which the company had to recognize large losses. The report was published on October, 16 th, and on December, 2 nd Enron already submitted documents about bankruptcy.
Actions of the company completely depreciated in short term, and the number of investors had significant losses. In order to improve system of the corporate reporting and to warn new unexpected bankruptcies, SEC offered a complex of measures, including reduction of corporate financial documents representation terms. According to the law accepted in 1934, the public companies represented the annual reports to SEC (the form 10 K) within 90 days after the end of the fiscal year. SEC suggested reducing this term till 60 days. Term of representation of the quarterly account is offered to be reduced from 45 till 30 days. In reports more concrete disclosing of the information are required.
SEC offered changing the terms of insider transactions information disclosing. Now, if insider sells shares which belong to him back to the company, it is allowed to inform about such operations on term down to 45 days after the end of fiscal year. According the new rules, such information should be disclosed within several days after the fulfillment of operation. It is offered to reduce the term for disclosing the information about operations of the purchase / sale of actions of the company by its top-managers in the open market.
Now it is necessary to give such information till the 10 -th day of month, following the one when the purchase / sale was accomplished. Thus, the delay with disclosing of the information can reach 40 days. SEC wanted to change this rule. Besides SEC wished to expand the content of reports under the form 8 K in which the companies should inform about the important events in their life, for example, about replacements in management. Offers of SEC were put for public discussion and were approved by legislature. Bibliography Baynes, Leonard M.
Just Pucker and blow: An analysis of corporate whistleblowers, the duty of care, the duty of loyalty, and the Sarbanes-Oxley Act. St. Johns Law Review 76. 4 (2002) Berenbeim, Ronald. Improper Corporate Behavior: Enron's Syllabus of Errors. Vital Speeches of the Day 68. 10 (2002) Cover, Brian. Anatomy of Greed: The Unshredded Truth from an Enron Insider.
New York: Carroll and Graff Publishers, 2002 Far, Paul. A Whistle That Can Pierce the Glass Ceiling. Washington Post 6 July 2002.
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