The Enron Scandal: Everything You Need to Know

Enron scandal was an accounting fraud that occurred in Enron Energy Corporation located in Texas, America. It occurred in October 2001, leading to the company's bankruptcy in December 2001 (Bondarenko, 2019). Seven years before its fall, Enron used Wall Street magic, it transformed energy supplies into instruments that could transacted in the form of stock market and bonds. The company's supply became steady with a fair price guaranteeing customers convenient business. Besides, the company allowed open innovation with the think-outside-the-box concept, paradigm-shifting, and market-making perspectives. Among its innovations was the case of hubris, which could allow it to trade energy anywhere in the new virtual market. They converted everything into business contracts, "the derivatives," which included newsprint, TV advert time, insurance risk, and high-speed data transmission. At first, these ventures seemed to work well for the company causing it to pour billions, but this was a terrible idea. Most of these invent failed, leading to the collapsing of the company. The Enron scandal led to the Sarbanes-Oxley Act of 2002 (SOX). 

Arguably, SOX would reasonably satisfy the areas that paved the way for the fraud, including management failure to conduct better accounting practices, independent auditors who spent more money in consulting than auditing, and the regulator congress that eliminated the accountants’ consultant role. These are the area in which Sarbanes-Oxley focussed on, imposing strict regulations. The SOX act placed standards and regulations on strengthening the internal control that could help Enron the independence of auditors who were thought to have had hidden fraud agendas. These standards could also disclose off-balance-sheet entities to determine the business's financial status before deciding on the massive investment. The act could also regulate the conflicts of interests between staff to ensure that accountants' consultant role was sustained throughout their operations. The base and foundation of the Sarbanes-Oxley act were derived from the Enron fraud; hence the act is fully equipped to prevent the occurrence of "another Enron Scandal." 

Reference 

Bondarenko, P. (2019). Enron Scandal. Encyclopedia Britannica . https://www.britannica.com/event/Enron-scandal