Enron
...market-making activities". It seems to have used the term "wholesale businesses'' to mean trading, plain and simple. From which it made more than 90 per cent of its revenue. To make matters worse, Enron bought and sold the same goods over and over again. And all this trading; a good amount of which was being carried on with purportedly independent partnerships which do not look very independent on examination, was being booked as revenue at full value. The impacts of the Enron collapse spread out in many directions, starting with Enron employees who lost their jobs; shareholders who saw their investments shrink to a fraction of their previous value; energy purchasers whose contracts were not delivered on; and insurance and financial institutions and other creditors who are holding the bag for $11 billion of unsecured debt - the amount outstanding when the company went down. Now, as a result of the Enron scandal, chief executives must now certify in writing that company accounts and other financial statements fairly represent their firm's financial position. So how did all this affect the markets today; most disturbing is what on earth the value of generally accepted accounting principles is now? GAAP was born back in the days when people made simple products in factories and sold them for fixed prices. It wasn’t built to handle things like intellectual property, stock options and software licensing agreements. Though the rules have evolved somewhat, GAAP’s backbone is still copper in a fiber optic world. “A lot of the current accounting rules were contemplated in an industrial economy, rather than an intellectual capital economy. The Enron collapse has given new meaning to the word "partnerships" and has brought to the fore somewhat controversial accounting procedures which helped the multinational company look more profitable than it actually was. The company’s fall has changed the way investors look at companies. It has raised the bar for young companies hoping to go public. It has spurr...