Enron Collapse
The collapse of Enron points out two problems in today's business world. First, some companies will try almost anything to create the appearance of having a great business plan and an ability to make money hand over fist, and second, they will attempt to hide the manipulations from auditors and stock holders hoping to 'fix' any problems before anyone finds out what's been going on. The auditors are expected to be the ones to find the balance sheet manipulations, but when the auditors are also making millions from the same company as consultants, they become willing to look the other way and not ask what may be obvious questions. Enron used public relations to boost its image and boost stock price as investors bought in to the idea that they had invented the future for the energy business. Arthur Andersen was willing to sign off on whatever they received from Enron and publish it as corroborated fact to maintain the consulting side of the business.
Stockholders were buying into the stock price surge as just being part of the new stock market were prices can only go up. Employees filled their 401(k)s with Enron stock, more than eager to make a killing in their retirement accounts. Sooner or later, with this type of a scenario, the bubble bursts and everyone is 'shocked' and unable to understand how this could have happened.
In Arthur Andersen, what we have is an example of an industry that needs to be monitored, if not prevented from consulting for companies for which they are providing auditing services. The 'trust us' approach just won't work where large amounts of money are involved. In Enron, a 'real' audit would have highlighted what was going on well before the problems got to where they were in December 2001.
As for the employees and their 401(k)s, does the expression "if it seems to good to be true, it probably is" sound familiar? The fact that they chose to gamble their retirement accounts in their company's stock and then lost is the chance they took - and not a very good gamble at that. They should have considered the fact that if the company they worked for went south, not only would they lose their job but their retirement money. I think the operative word for what most employees did is greed. Some employees have complained that they were prevented from moving out of Enron stock. The lock down came in October when Enron stock had fallen from $90 a share to the mid 30's. They could have moved out of Enron stock anytime prior to that and are using the lock down as an excuse to not have to admit they were stupid in doing what they did.
Auditors need to be prevented - by law - from providing consulting services to companies they audit. This may put a crimp in their bottom line, but will increase the probability that the audits they produce will have been done without consulting contracts in the back of their minds.
01/24/02 ( 299 )
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