Enron was once among 10 largest firms in the US. It filed for bankruptcy protection in late 2001, which is the largest bankruptcy case in the history until then. A lot of accounting fraud and corporate governance weaknesses were revealed. Nov 8,2001, Enron restated its financial statements to reduce earnings by an additiontal $586 million over the past four years. It is revealed that the CEO has unfettered power; the internal audit committee did not function at all because of serious conflicts of interest. Besides, external auditors had very close relationship with management.
1. Why executives in Enron had tried to overstate earnings and understate liabilities?
2. Is Enron’s demise avoidable?
3. Why and How?
4. Does governance matter?