IT402_Unit_6_Assignment_1_.docx IT402 IT Consulting Skills Unit 6-1 Assignment Purd

IT402_Unit_6_Assignment_1_.docx    IT402  IT Consulting Skills   Unit 6-1 Assignment  Purdue University Global IT402 IT Consulting Skills   The Enron scandal was an accounting scandal that involved Enron Corporation. They were an American energy company that was based in Houston Texas. This scandal resulted in the collapse of both Enron and Arthur Anderson and it is most likely one of the more memorable in modern history. The scandal was brought to light in October 2001; when Enron reported  shocking losses in the third quarter of 2001. The U.S. Securities and Exchange Commission (SEC) first began an investigation in December 2001 after they filed for bankruptcy. Enrons collapse was mainly caused by their use of a particular accounting method that is known as market to market, an accounting approach that was only used by trading companies. Market to market is an accounting technique where the prices or value of a security that is recorded daily to calculate profits and losses. While doing this Enron counted the possible earnings from long- term energy contract that had not paid out yet. This means they were counting potential earnings as if they were current income, even if they were not expected to collect on the contracts for years. By doing this, Enron severely inflated their earnings by manipulating the future earnings.  Arthur Andersen played a huge role in this scandal by categorizing hundreds of millions of dollars as increases in shareholder equity. This was misrepresenting Enrons true value as a cor