Question

The high-flying Enron Corporation dominated the financial news in the last few months of 2001 and early 2002. The company experienced a collapse in its stock price that was breathtaking. The Enron scandal offers the opportunity to assess the degree to which misleading accounting can affect connected firms and industry rivals. After reading this article, provide your thoughts and ideas on ACCOUNTING CONTAGION: THE CASE OF ENRON.

Answer 1

I really enjoyed reading the article Accounting Contagion: The Case of Enron By Aigbe Akhigbe, Jeff Madura, and Anna D. Martin. I believe it was the perfect culmination of all the courses previous discussions regarding financial accounting and the transparency that should be displayed regarding a firm’s financial reporting. This article discusses, essentially, the ripple effect of inaccurate financial reporting. The authors stated it best, “inaccurate financial reporting by a single firm may affect not only its shareholders but also the shareholders of connected firms and competitors.” When it comes to balance sheets, income statements, cash flow statements, firms should exact total truth and transparency. This reporting is essential to the health of the firm and every small, medium, and large business in an economy. As the article points out, this “contagion” spread throughout every facet of a society when firms do not display integrity with their accounting practices. As for Enron, the bankruptcy which was the end result of deceitful accounting practices “wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans” That’s a huge price to pay for an event that could have been avoided, if Enron’s leadership would have simply done what was right and followed best practices.