An Organizational Crisis of Enron



&nbsp.In the context of the modern market, firms operating in various industries need to follow the rules regulating the activities developed in the local market. in case that the activities of a firm can impact the international market, then it is necessary for additional measures are taken – for instance, continuous monitoring of these firms’ activities and obligation for submission of detailed corporate reports. The US market is highly regulated. However, in the past, the importance of corporate activities for the market’s performance was not adequately appreciated. In fact, it was through a series of severe corporate scandals (for instance, Enron and WorldCom) that the existing US legislation on organizational operations was updated. The introduction of the Sarbanes Oxley Act of 2002 has minimized the chances for severe violations of corporate laws. the provision of accurate information through the corporate financial statements is an issue mostly addressed in the current US corporate legal framework. Through this framework, it is expected that major market turbulences because of corporate failures – like in the case of Enron – will be easier avoided in the future.

The collapse of Enron has been mostly related to a series of severe accounting failures. These failures have been extensively researched and are evaluated using different approaches. In accordance with Sterling (2002) the accounting problems appeared in Enron could be summarized as follows: a) ‘the financial statements on the firm’s special entities should not be consolidated with the corporation’s financial statement’ (Sterling, 2002, p.113), b) derivatives should not be used in order to influence the firm’s accounting data (Sterling, 2002, p.113), c) the liabilities of the firm were not appropriately listed (Sterling, 2002, p.113).&nbsp.