The 2002 failure of Enron corporation and Arthur Anderson Co, their Essay

The 2002 failure of Enron corporation and Arthur Anderson Co, their auditors - Essay Example This study discusses what happened with Enron, defines the problems that plague the high profile corporation, present solutions and alternatives, as well as give a sweeping opinion on how the problems could have been solved or avoided in the first place from this researcher's perspective alone.Enron Corporation was an American energy company and considered as one of the world's leading electricity, natural gas, pulp and paper, and communications group of companies. It claimed $111 billion revenues in 2000 and Fortune magazine accorded it "America's Most Innovative Company" for six consecutive years, employing around 21,000 people. Enron started out as Northern Natural Gas Company in the early 1930s at Omaha, Nebraska. It became an organized holding company Internorth in 1980s, and then it purchased Houston Natural Gas in 1985 of which Kenneth Lay became the chief executive officer. The merged company was named Enron and was involved in transmission and distribution of electricity and gas throughout the United States. It also engaged in the development, construction and operation of power plants, pipelines, and other infrastructure worldwide. It later market and promoted communication bandwidth commodities and other "derivatives" and grew in opulence behind inflated, fraudulent and non-existent financial reports. Enron declared bankruptcy in late 2001. By 1995 accountants at Arthur Andersen knew Enron was a high-risk client who pushed them to do things they were not comfortable doing. Critics have identified the complicated management approach as one of the culprits that caused Enron's collapse. Initially, the company performed extensive diversification to expand its product and service lines. Because of the strategy, the company experienced robust growth and gained reputation as a multi-dimensional firm. In addition, the firm continued to evolve its business model. Considering the unpredictable circumstances and calculated risks, Enron was successful on paper. This was reflected in the financial reports suggesting the extent of growth in the financial capability of the company. Specifically, the level of stocks reported by the company has skyrocketed. The information provided by the Enron 10-K annual report suggests that it was only in 1997 that the company experienced a decline. According to James Hecker, one of the investors of Enron, Andersen had knowledge on the nature of Enron's operations. The company even branded Enron as a high risked firm that is willing to do all means required to achieve its goals. Moreover, Hecker described the relationship of the Andersen employees to Enron. In the exact words, Hecker said: "Managers in the doorway, thinking out of the box. And I was thinking to myself, I'll bust by butt and then I'll bust my rocks (Schepp, 2002)." This satire showed how generously the employees of Andersen working for Enron were compensated and provided with great incentives. Moreover, Hecker described Enron as a lovely face and a fragile place. Basically, Hecker has knowledge on the true status of the company. Hecker even mentioned in the satire that the managers will soon bring their alibis to court. Precisely, Hecker highlighted the events that will happen years later