IndexThe Enron ScandalThe Role of Stakeholders in Enron's DownfallConclusionFrom the 1990s until the unfortunate 2001 scandal, Enron Corporation was a household name in the global business community. The company was known for its innovations, cutting-edge technology and bold spirit in business. The unexpected fall of Enron in 2001 had a devastating effect on the business world and its employees. As it turns out, Enron's impressive success was a mirage and it found itself trapped in a financial mess that was largely of its own making. Enron's growth and success was based on falsified profit statements, unethical accounting practices, and fraud. The scandal marked the dawn of an era of revolutionary change in corporate governance globally. It has led to the emergence of legislative reforms to prevent, or at least alleviate, future business failures - Sarbanes-Oxley Act 2002. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay The Enron Scandal Enron's problem was further exacerbated by substantial fluctuations in the company's revenue. As a result, Enron has used strategies aimed at increasing its financial and operational performance so as to support the company's investment grade credit rating which grants it access to low-cost financing and encourages investment. Notable among the strategies employed by Enron were: prepayment, asset syndication, and hedging contacts with its special purpose entity (SPE). Enron did not comply with U.S. Generally Accepted Accounting Principles (GAAP) in accounting for prepayments. Under GAAP, prepayments must be recorded as debt and cash flow from financing activities. However, in order to improve its credit rating and increase its stock price, Enron accounted for the prepayment as a business liability and cash flow from operating activities. This manipulation has a huge influence on Enron's performance outlook. For SPEs to be legally excluded from a company's balance sheet, three criteria must be met: at least 3% of its capital must come from an external investor, the entity must be subject to the control of an independent party and the company will not be able to assume any responsibility. Enron circumvented these criteria and employed SPEs to hide the company's debt because a high debt profile would reduce the degree of investment and consequently cause banks to call in money. The SPE, under the leadership of Enron's Chief Financial Officer, Fastow, used Enron's stock as collateral to obtain a huge loan amount that was used to liquidate the company's overvalued contracts. In doing so, Enron converted loans and debt obligation assets into income using SPE. Failure to report debt incurred in Enron's financial report deceived shareholders into believing that debt was not increasing and that revenue was increasing. protects the interests of the company and its shareholders. This was not the case with Enron directors, who failed in their fiduciary duties. The Board of Directors is not only aware of but has failed to address the Company's questionable strategies, unscrupulous policies and deceptive operations. Some of the directors' shortcomings that contributed to Enron's downfall include: acceptance of high-risk accounting practices,.