Corporate wrongdoings, underlying reasons and whistleblowing

Abstract

The Enron scandal, revealed in October 2001 was the largest bankruptcy reorganization in America and undoubtedly the biggest audit failure that led to the dissolution of Arthur Anderson which was one of the five largest audit and accounting firms in the world. Anderson lost its license to audit public companies because it was guilty of adopting illegal means. The shareholders of the company filed a $40 billion lawsuit after the stock prices plummeted from US$90.75 per share in mid-2000 to less than $1 by the end of November 2001. The case came to the forefront in 2001, only after previous futile attempts have been made by Sherron Watkins, the VP of Corporate Governance at Enron. In August 2001, she reported financial irregularities to the then CEO Kenneth Lay. However, the company did not act upon the raised alarm. Ms. Watkins has been criticized for not reporting the fraud to government authorities well in advance. The image below depicts why Enron in 2000 was too good to be true in comparison to its peers. In the late 1990s, the company was considered to be one of the country’s most innovative. Its annual revenues rose from $9 billion to $100 billion from 1995 to 2000. It used systematic and planned accounting fraud to reach this pedestal.