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Submitted by calvinbroadus20 on April 29, 2007
Category: Business
Words: 1311 | Pages: 6
Views: 157
Popularity Rank: 67,019
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Introduction
On December 2, 2001 Enron Corporation filed for Chapter 11 bankruptcy. The nature of Enron’s business is primarily the trading and delivering of energy, natural gas and other physical commodities. The establishment of a deregulated energy market allowed Enron to grow from an ordinary pipeline company into one of the largest electronic traders acting as the middleman for utility companies worldwide. Prior to December 2nd, Enron was one of the most admired companies with a market capitalization of $80 billion. Enron was seen as a pioneer for creating marketplaces for deregulated commodities. However, the world would quickly realize that Enron was not as financially sound as it appeared to be. Enron’s stock value dropped from a high of $90 in August 2000 to a low of $0.26 per share just prior to bankruptcy. On November 28, 2001 the company’s bonds were downgraded to “junk” status. Over 4,000 Enron employees lost their jobs after the bankrupt declaration as well as losing a huge portion, if not all, of their retirement funds that were invested in Enron stock. The bankruptcy filing with over $13 billion in direct liabilities does not even cover liabilities not included in Enron’s financial statements and their list of creditors includes names such as J.P Morgan Chase, Citigroup and the Bank of New York, just to name a few.
The question remains: “What can be done to prevent a future Enron?” In my opinion, there are no specific methods that can completely eliminate the threat of a future Enron. The main reason in my opinion is because of GAAP. GAAP does not have a “definitive list of practices and that are generally accepted” (1). There is too much diversity in accounting principles that still remains. The better question is: “What can be done to reduce the threat of a future Enron?” The answer lies in the Sarbanes-Oxley Act.
Sarbanes-Oxley Act
The Sarbanes-Oxley Act came into force in July 2002 and introduced major...
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