Sometimes, corporate scandal may involve some sort of accounting fraud. Integrity is a quality that all practicing accountants should possess. An accountant should make sure that the financial statements he or she has prepared, fairly and accurately reflect a company’s financial condition as these information will influence decisions made by both internal (owners and management) and external parties (creditors, investors, government agencies). Here are just three of the many major accounting scandals that had plagued the corporate landscape in the past decade and how these indiscretions have affected the lives of thousands.

Enron Scandal

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The Enron scandal was a financial racket uncovered in late 2001 involving Enron Corporation and its accounting firm Arthur Andersen. During the 1990s, Enron took advantage of the newly deregulated electricity markets by entering into numerous contracts with special purpose entities or limited partnerships. These “off-books” deals presented Enron the perfect opportunity to do some creative accounting in order to avoid reporting its mounting debts and losses on its financial statements, thereby giving it the appearance of earnings growth for almost 5 years. By mid-November 2001, following the exposé of these irregular accounting practices, Enron found itself with very little cash for its normal daily operations, let alone to fulfill its financial obligations. A last ditch effort to survive through merger with another energy company, Dynegy, was met with failure. Enron eventually filed for Chapter 11 bankruptcy protection on December 2, 2001, the largest in US history at the time but since surpassed by Worldcom in July 2002 and Lehman Brothers in September 2008.

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The scandal did much to unsettle investor confidence in American business since internal and external controls failed to discover financial losses concealed as profits for many years. As a result, Enron shares dropped from over $90 to less than a dollar. The collapse of one of the biggest and supposedly best-managed companies brought about severe government and media attention. Investigations revealed that many Enron’s executives, including CEOs Jeffrey Skilling and Kenneth Lay, whose illegal activities caused the company’s downfall, escaped with millions of dollars as they retired their company shares before its price tumbled. Thousands of Enron employees were not so lucky; aside from losing their jobs, they saw their savings and retirement funds, a major portion of which were linked up in Enron stock, pretty much decimated. In total, investors lost more than $60 billion.

In the highly publicized trial in 2004, Skilling, Lay and a number of executives were found guilty for a wide range of financial offenses including bank and wire fraud, misleading the public with false statements, money laundering, and insider trading. Arthur Andersen, the external auditing firm that failed to act the part, came to its demise in 2002 when it was convicted of obstruction of justice for the destruction of key documents relating to its audit of Enron.