Enron Bankruptcy In The Us Essay Example

investigative division and only meets periodically, which means they cannot monitor companies full-time. The audit firm is solely responsible for their work, but the audit report did not include the necessary modifications.

To ensure a high-quality audit and prevent Enron's aggressive (and fraudulent) accounting, auditors should have implemented measures. It is important to examine the business risks Enron faced and how they increased the likelihood of material misstatements in their financial statements. While fraud was one of Enron's business risks, their downfall occurred when they engaged in aggressive transactions with special purpose entities (SPE's). The problem arose when Enron's accounting practices raised concerns by treating loans as revenue instead of recording them as liabilities, such as notes payable. By not including these liabilities in the financial statements, Enron misled creditors, investors, and customers into thinking that they were generating more profits than they actually were. Additionally, another business risk for Enron was losing all their investors due to continuous selling of their shares in the company.

Enron suffered a loss of reputation and public trust when its CEO Jeffrey Skilling resigned in the same year. The negative media attention resulted in a liquidity crisis in 2001, as well as additional business risks due to poor management decisions and practices.