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An accounting scandal of epic proportions took place in 2001. The Enron Corporation was a USA energy company that was formed by Kenneth Lay in 1985 when InterNorth and Houston Gas merged. Lay later recruited Jeffrey Skilling who oversaw a system of "mark-to-market" pricing - a system whereby future profits from deals could be accounted for by estimating their present value rather than historical cost. When deals went bad executives sought to hide losses using complex accounting methods as mentioned above. As billions of Dollars of debt built up after entering into dodgy deals , Chief Financial Office , Andrew Fastow mislead Enron`s Board and convinced the auditors Arthur Anderson that all was ok.

When the scandal broke in October 2001 , Enron was forced to declare bankruptcy and the auditors - Arthur Anderson - then the 5th largest accountancy firms in the world - was dissolved. The company`s share price fell from $90 in mid 2000 to less than $1 in late 2001. Shareholders filed a $40 Billion lawsuit seeking recompense. The SEC filed an investigation and subsequently Enron filed for Chapter 11 Bankruptcy making it the largest bankruptcy in US history at that time.
Many executives were indicted and Lay , Skilling and Fastow all received prison terms but Lay died of a heart attack prior to sentencing.

Finally , Enron`s employees and shareholders received scant rewards from the lawsuit and suffered huge pension and share losses. New legislation in the guise of the Sarbanes-Oxley Act was later introduced to try to prevent such false accounting ever happening again.


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