IndexNarrative of the Accounting ScandalKey PlayersHow Did They Do It?How Did They Get Caught?SanctionsConclusionEnron was created by Kenneth Lay in 1985 in Houston, Texas, through a merger between Houston Natural Gas Company and InterNorth Incorporated. Kenneth Lay became Enron's CEO and chairman following his leadership at the Houston Natural Gas Company and transformed the company into an energy trader and supplier. Kenneth Lay also created the Enron Finance Corporation and placed its management in the hands of Jeffrey Skilling. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay Accounting Scandal AccountThe Enron Corporation accounting scandal led to the bankruptcy and dissolution of accounting and auditing partner Arthur Andersen. Many investors have lost money due to accounting fraud and when the company was not adequately protected it became an opportunity for massive exposures. Employees were totally affected causing loss of pension benefits. Shareholders lost a large sum of $74 billion. Flanagan said that during the third quarter Enron reported a loss of $618 million and suddenly collapsed. Chief Financial Officer Andrew Fastow manipulated accounting rules and hid Enron's debts of billions of dollars in losses through illegal accounting practices. Arthur Andersen LLP was the accounting firm that illegally handled Enron audits by disclosing company documents claiming they had been destroyed by employees. Key Players CEO Jeffrey Skilling earned his MBA from Harvard before working at McKinsey and joined Enron in 1990 and became the CEO working with Kenneth Lay. CEO Kenneth Lay is Enron's founder and CEO for 15 years. Chief Financial Officer Andrew Fastow was hired by Skilling and became the CFO by the year 1998. How did they do it? According to Segal Enron falsified holdings and unaccounting practices. They used the opportunity to modify their financial transactions using special purpose vehicles or entities to hide their large losses. Enron entered a successful market and intentionally overstated the revenue it earned from the collaboration. CEO Jeffrey Skilling hides financial losses incurred by company operations, including projects they have partnered with, through the mark-to-market accounting practice. This accounting concept preferably recognizes current market value rather than book value. CFO Andrew Fastow also helped control financial transactions and eliminate branch losses. Arthur Andersen, Enron's accounting partner, hid the fact of the real large losses suffered from Jeffrey Skilling's leadership and ordered his auditors to destroy files or documents with the contents of the forgery. How were they captured? Sherron Watkins, vice president of Enron, informed Ken Lay via a written letter of Skilling's activities related to illegally executed trades. Sherron met with Ken Lay and concluded that the CFO had control of the Special Purpose Entities (SPEs). Some of the employees who participated in the accounting took their shares, leaving Enron under strong suspicion by the authorities. The Securities and Exchange Commission (SEC) opened investigations due to the sudden loss of $618 million and sudden decline in shares. Authorities have begun investigating transactions at Enron and CFO Fastow's factories.