Table of ContentsThe Enron ScandalThe Roles of Stakeholders in the Fall of EnronConclusionFrom the 1990s until the unfortunate scandal of 2001, Enron was a household name well known in the global business community. . The company was renowned for its innovations, cutting-edge technology and bold business spirit. The unexpected collapse of Enron in 2001 had a devastating effect on the business world as well as their employees. Apparently, Enron's impressive success was a mirage and it found itself mired in a financial mess that was largely its own creation. Enron's growth and success was based on falsified earnings reports, unethical accounting practices, and fraud. The scandal marked the dawn of an era of revolutionary change in global corporate governance. This led to the birth of legal reforms aimed at preventing, or at least mitigating, future business failures - the Sarbanes-Oxley Act of 2002. Say no to plagiarism. Get a custom essay on “Why Violent Video Games Should Not Be Banned”?Get the original essayThe Enron ScandalThe Enron problem was further compounded by substantial fluctuations in the company's revenue. As a result, Enron used strategies to increase its financial and operational performance in order to maintain the company's credit rating, which allows it to access low-cost financing and encourage investment. Strategies employed by Enron include: prepayment, asset syndication, and hedging contacts with its special purpose entity (SPE). Enron failed to follow U.S. generally accepted accounting principles (GAAP) when accounting for prepayments. Under GAAP, prepayments must be recorded as debt and cash flow from financial activity. However, in order to improve its credit rating and increase its stock price, Enron recognized the prepayment as a business liability and cash flow from operating activities. This manipulation has an immense influence on Enron's performance prospects. Three criteria must be met for SPEs to be legally excluded from a company's financial statements: a minimum of 3% of its equity must come from an external investor, the entity must be under the control of a party independent and the company shall not be held liable for any liability. Enron circumvented these criteria and used SPEs to hide the company's debt, because a high debt profile would reduce investment quality and therefore cause banks to call in money. The SPE, under the leadership of Enron's CFO Fastow, used Enron's stock as collateral to take out a massive loan that was used to offset the company's overvalued contracts. In doing so, Enron converted its loans and debt assets into income through the SPE. Failure to report debts incurred in Enron's financial report misled shareholders into believing that debt was not increasing and revenue was increasing. The roles of stakeholders in the fall of Enron protects the interests of the company and its shareholders. This was not the case for the directors of Enron, as they breached their fiduciary duties. The board of directors is not only aware, but has also failed to stand up to the company's questionable strategies, unscrupulous policies and deceptive dealings. Some of the shortcomings of..