Analyze Accounting Fraud at Enron

Analyze Accounting Fraud at Enron by:

-Giving a description of the suspects/victims profile
-Recognize the motives (or possible motives if not reported) of the suspect(s)
-Document how the fraud was investigated
-Discuss the resolution (or possible resolution if the case is still pending)

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Sample Answer


Accounting Fraud at Enron

Enron Corporation was an energy, services, and commodities company that was founded in 1985 and operated out of Houston, Texas.  In 2001, the company was embroiled in an accounting fraud scandal involving misrepresentations on the company’s financial statements to give the perception of profitability (Segal, 2021). The accounting scandal resulted in the organization’s subsequent declaration of bankruptcy and eventually dissolution.

Description of the Suspects and Victims Profiles

The suspects in the Enron accounting fraud were high-ranking members of the executive leadership and management at the company. The suspects in the scandal held positions of considerable influence within Enron. As such, the suspects were well-remunerated members of the company who had a stake in the financial success of the organization (Li, 2010)). Furthermore, the suspects mostly aged and had held executive and management positions in other firms. The victims of the Enron accounting scandal were mainly investors and creditors in the company. The investors who lost money in the scandal had bought shares in the company which was listed on the New York Stock Exchange. The investors had entrusted the leadership of Enron to run the company ethically and achieve profitability. Investors also trusted the accuracy of the financial statements released by the company. The creditors who were victims in the scandal had loaned out considerable sums to Enron based on the financial statements provided by the executives of Enron.

Motives of the Suspects

The main motive of the suspects of the Enron scandal was financial greed. The members of the executive and top-level management of Enron were compensated through stock options. The award of stock options incentivized the suspects to create the perception that the company was experiencing rapid growth and meeting financial performance expectations (CFI. 2020). Subsequently, the suspects engaged in accounting fraud to shore up the stock price of the company’s shares and increase their earnings. Secondly, the suspects were motivated to engage in accounting malpractices to maintain the confidence of the investors in the company and also prevent any public perception that the company was on the decline.

Investigation of the Enron Accounting Fraud

The investigation into the accounting fraud at the company was investigated by the Securities and Exchange Commission (SEC). The SEC focused its investigations on the various transactions and deals that had been struck by Enron. Audits of the financial statements of the company focused on the public disclosures of the company against its actual financial performance.  The investigation focused on investigating the transactions overseen by Andrew Fastow, Enron’s Chief Financial Officer. The SEC investigated the book of the various special purpose entities (SPEs) that had been created by Fastow to hide the troubled and non-performing assets of Enron (Segal, 2021). The SEC also investigated Arthur Andersen, the accounting firm for Enron. With Arthur Andersen, the SEC probed the auditing practices of the firm to identify malpractices and misconduct in relation to their handling of accounting for Enron.


Following the revelations of the accounting fraud at Enron, the company’s stock price plummeted to a low of $0.26 from a high of $90.75 per share (CFI, 2020). As such, the many investors in the company suffered heavy financial losses. The scandal forced the company to file for bankruptcy in December 2001. The executives at Enron who had been involved in the financial fraud, including the CEO and CFO, were prosecuted and found guilty of engaging in securities fraud, conspiracy, wire fraud, and money laundering.


CFI (2020). Enron Scandal – Overview, Role of MTM, Agency Conflict. Corporate Finance Institute.

Li, Y. (2010). The case analysis of the scandal of Enron. International Journal of Business and Management5(10), 37.

Segal, T. (2021). Enron Scandal: The Fall of a Wall Street Darling. Investopedia.

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