CHRONOLOGY OF A COLLAPSE ( January 9, 2002

Chronology of a Collapse • The Justice Department launches a criminal investigation.

November 1997
• Enron buys out a partner's stake in a company called JEDI and sells the stake January 10
to a firm it creates, called Chewco, to be run by an Enron officer. Thus begins • Attorney General John Ashcroft rescues himself from the investigation
a complex series of transactions that enable Enron to hide debts. because of contributions he received from Enron. Andersen acknowledges
destroying Enron files.
February 20, 2001
• A FORTUNE story calls Enron a "largely impenetrable" company that is (http://content.time.com/time/specials/packages/article/0,28804,2021097_202
piling on debt while keeping Wall Street in the dark. 3262,00.html)
Stock Close: $75.09
Enron The real scandal
April 17 THE collapse of Enron was spread over several months late last year, when
• Enron chairman Ken Lay meets with Vice President Dick Cheney and other the world's attention was still on Afghanistan. The Texas-based energy-
energy-policy officials; it's one of six such visits. trading giant, once America's seventh-biggest company, declared bankruptcy
on December 2nd. Yet it has taken until now for this simmering affair to boil
over in Washington, DC. And, as so often, the ensuing scandal risks focusing
August 14 on the wrong issues.
• CEO Jeffrey Skilling resigns, becoming the sixth senior executive to leave in
a year. Lay says in a conference call with stock analysts, "I never felt better On Capitol Hill, much of the talk has been of the close links that Kenneth Lay,
about the company." He deflects analysts' pleas for more disclosure. They Enron's chairman, had with George Bush and other Texas Republicans. The
lower their ratings on Enron stock, which drops in after-hours trading to a 52- press has been burrowing into how often Mr Lay and other Enron bosses
week low. called administration officials to beg fruitlessly for help. There has been tut-
Stock Close: $39.55 tutting about congressmen collecting campaign money from Enron, which, far
from buying Republicans alone, was admirably bipartisan: three-quarters of
October 12 the Senate took Enron cash. And public indignation has been roused over how
• Arthur Andersen legal counsel instructs workers who audit Enron's books to much Mr Lay and his colleagues made from Enron shares, unlike their
destroy all but the most basic documents. workers, whose pension funds were largely invested in Enron stock that they
were unable to sell in time.
October 16
• Enron reports a third-quarter loss of $618 million. Moody's investors Service Yet little of this is new. Certainly, Enron's demise confirms some unattractive
indicates that it is considering lowering its credit rating on Enron debt features of American public life (see article). The campaign-finance system
securities. puts too many politicians under obligations to big-business donors: Enron
Stock Close: $33.84 lobbied successfully for exemption from financial regulation for its energy-
trading arm, and it also helped to draw up the administration's energy policy.
October 22 Executive pay and stock options have long given bosses too much for doing
• Enron discloses that the Securities Exchange Commission has opened an too little. Some companies have been at fault in encouraging workers to invest
inquiry. pension money in their shares; after Enron, legislation to limit this is urgently
needed. But for the most part, the bankruptcy of Enron was just part of the
rough-and-tumble of American capitalism, the most successful system the
October 24 world has known.
• Chief financial officer Andrew Fastow, who ran some of Enron's stealth
partnerships, is replaced. Who guards the guardians?
Yet there is one big issue that should now attract more attention: the
October 26 governance of the public capital markets, and especially the role played by
• The Wall Street Journal reports the existence of the Chewco partnerships run auditors. The capital markets, and indeed capitalism itself, can function
by an Enron manager. Ken Lay calls Fed Chairman Alan Greenspan to alert efficiently only if the highest standards of accounting, disclosure and
him of the company's problems. transparency are observed. In America, well-policed stockmarkets, fearsome
Stock Close: $15.40 regulators at the Securities and Exchange Commission (SEC), stern
accounting standards in the form of generally accepted accounting principles
October 28 (GAAP), and the perceived audit skills of the big five accounting firms, have
• Lay calls Treasury Secretary Paul O'Neill. In October and November, long been seen as crucial to the biggest, most liquid and most admired capital
Enron's president phones an O'Neill deputy at least six times, seeking help. markets in the world.
The collapse of Enron is now raising some big questions (seearticle).
Andersen, the company's auditor, has admitted to an “error of judgment” in its
October 29 treatment of the debt of one of Enron's off-balance-sheet vehicles; these
• Lay calls Commerce Secretary Donald Evans, suggesting he help Enron. vehicles led to an overstatement of profits by almost $600m over the years
1997-2000. This week Andersen fired the partner in charge of the Enron audit,
November 8 when it found that he had ordered the disposal of documents even after
• Enron admits accounting errors, infalting income by $586 million since the SEC had subpoenaed the firm as part of its investigation into Enron. This
1997. is not the first time that Andersen has been in trouble: last year, it was fined
over its audit of another Texan company, Waste Management, and it also had
November 9 to settle a suit over the audit of Sunbeam, a Florida-based company.
• Lay again talks to Treasury's O'Neill. If this were simply a case of one accounting firm doing wrong, that would be
regrettable but containable. Andersen may go under thanks to Enron litigation
anyway. But the truth is that it is not unique. It may have been unusually
November 29
culpable, but all the accounting firms have made mistakes in the past. Only
• The SEC expands its investigation to include auditor Arthur Andersen.
this week, KPMG became the latest to be censured, this time for breaking
rules barring investment in audit clients.
December 2 That points to the need for systemic reforms, in three areas. The first is the
• Enron files for bankruptcy. regulation of auditors. For years the profession has insisted that self-regulation
Stock Close: 26 cents and peer review are the right way to maintain standards. Yet Enron has shown
that this is no longer enough. The Public Oversight Board should be turned
December 12 from a self-regulatory body appointed and financed by accountants into a
• Andersen CEO Joseph Berardino testifies his firm discovered "possible statutorily independent organisation reporting to the SEC. And it should be
illegal acts" committed by Enron. given teeth, including the power to ban or fine auditors for misdeeds.
Second is the urgent need to eliminate conflicts of interest in accounting Enron's core business, the energy trading arm, has been tied up in a
firms. Andersen collected audit fees of $25m from Enron, its second-biggest complex deal with UBS Warburg. The bank has not paid for the trading unit,
client, last year, but it earned even more for consulting and other work. The but will share some of the profits with Enron.
accounting firms have fought off attempts to limit or stop them undertaking Centrica, part of the former British Gas, has bought Enron's European
consulting work for audit clients; they insist that there is no real conflict of retail arm for £96.4m.
interest. Yet if confidence in auditing is to be regained, perception is as Dynegy, a smaller rival, has won a key pipeline in the US after merger
important as reality. The SEC should now pursue again the ban that its talks fell through. The pipeline was then resold to Warren Buffet.
previous chairman, Arthur Levitt, sought to impose in 1999. There is also a The power project in India's Maharashtra state - the biggest foreign
strong case for compulsory rotation of auditors, say every seven years: investment project in India - is still for sale.
Andersen had audited Enron since its birth in 1983. In line for reform
Lastly come America's accounting standards. GAAP standards used to be That Enron's false accounting was not spotted sooner has prompted the
thought the most rigorous in the world. Yet under British standards, Enron accounting industry to take a hard look at itself.
would not have been able to overstate its profits by so much. And, once again, Hundreds of US firms which used so-called aggressive accounting methods to
although Enron may have been egregious, it is not a lone offender. Several keep debts or one-off charges away from the headline figures have been
dotcoms and technology companies have used what is euphemistically called affected.
“aggressive accounting” to boost reported earnings. Too many companies And Andersen, the former auditing giant, has collapsed after being found
have got away with “pro forma” accounting that delivers nice numbers by guilty of deliberately destroying evidence of its relationship with Enron.
omitting such items as stock write-offs, special transactions, interest charges President George W Bush has passed a tough new bill aimed at cracking down
or depreciation. And the accounting treatment of stock options has long been a on corporate fraud.
disgrace.
The SEC and its standard-setting body, the Financial Accounting Standards And he has also ordered a review of US pension regulations, after Enron
Board, should now revisit GAAP; they might even embrace international employees lost billions of dollars because their pensions scheme was heavily
accounting standards instead. There is a lesson from British experience in the invested in Enron's own stock.
1980s, when several audit scandals led to both tougher regulation and more Other issues earmarked for attention by reformers include:
rigorous accounting standards. The Enron scandal shows that America can no The role of business funds in political campaigning.
longer take the pre-eminence of its accounting for granted. That is a far bigger The extent of energy companies' influence on national energy policy.
concern than any number of congressional investigations. Potential conflicts of interest between consultancy and auditing work.
The need for tighter regulation on financial derivatives trading.
(http://www.economist.com/node/940091) Political implications
The scandal has also entered the political realm, because of Enron's close links
with the White House.
The Enron scandal has far-reaching political and financial implications. Enron provided millions of dollars to finance Mr Bush's 2000 election
BBC News Online reviews the key facts to help you make sense of campaign.
developments. Mr Bush was a personal friend of Mr Lay, but has been quick to distance
himself from any involvement with the firm.
In just 15 years, Enron grew from nowhere to be America's seventh largest It has also emerged that Mr Lay called two US cabinet officers before the
company, employing 21,000 staff in more than 40 countries. company filed for bankruptcy late last year.
But the firm's success turned out to have involved an elaborate scam. And the US Treasury Department has said one of its officials felt he was
Enron lied about its profits and stands accused of a range of shady dealings, asked to help Enron last year by company president Lawrence Whalley.
including concealing debts so they didn't show up in the company's accounts. Enron executives also met Vice President Dick Cheney and his energy task
As the depth of the deception unfolded, investors and creditors retreated, force several times to discuss the administration's energy plan.
forcing the firm into Chapter 11 bankruptcy in December. Despite much mud slinging, there is no implication of guilt as yet.
More than six months after a criminal inquiry was announced, the guilty UK fallout
parties have still not been brought to justice. The British political repercussions of the Enron collapse centre around
The investigators whether Labour's sponsorship from the company led to a change in
A chorus of outraged investors, employees, pensionholders and politicians are government energy policy.
demanding to know why Enron's failings were not spotted earlier. Downing Street has dismissed allegations that the UK government is
And the US Justice Department is thought to be trying to charge several "enveloped in sleaze" over its links with Enron.
executives for fraud and money laundering. The Conservatives and Liberal Democrats are demanding an independent
Prosecutors have come to a deal with one insider, Michael Kopper, who will inquiry into what they say could be an affair about cash-for-access.
plead guilty and spill the beans about Enron's murky finances. Labour's relationship with Enron's accountants, Andersen, has also raised
There is no date for a trial yet. questions, especially as the firm was taken off the unofficial blacklist for
There has already been a far-reaching investigation into the scandal by a government work, where it had been placed after the De Lorean car scandal in
number of congressional committees. the early 1980s.
Three key players appeared involuntarily and then refused to speak in order to The peer, a former Conservative energy minister, joined Enron as a non-
avoid incriminating themselves: executive director in 1994 and sat on the corporation's audit committee.
Andrew Fastow: Former chief financial officer, sacked as the scandal Investigators say they do not believe Lord Wakeham was party to any fraud,
unfolded, and alleged author of the deceptive accounting practices. but he could still face lawsuits from those who accuse him of failing to make
Kenneth Lay: Enron's former chief executive and chairman since 1986 public concerns about the energy giant.
refused to testify at the last moment after saying he had been pre-judged.
David Duncan: Enron's chief auditor at Andersen who shredded key (http://news.bbc.co.uk/2/hi/business/1780075.stm)
documents relating to the case. It was his job to check Enron's accounts.
Three senior executives did testify:
Joseph Berardino: Andersen's chief executive, vigorously defended his The Enron Collapse: A Look Back
firm's role in the affair. Dec. 2, 2011 marks the 10-year anniversary of the Enron Corporation's filing
Jeffrey Skilling: Enron's chief executive in the first half of 2001 denied for Chapter 11bankruptcy protection in a New York court, a move that
knowing that anything was wrong at the firm sparked one of the largest and most complex bankruptcies in U.S. history.
Sherron Watkins: Enron employee and "whistleblower" of the scandal. Headquartered in Houston, Enron was an energy, commoditiesand services
She claimed that Ken Lay was 'duped' and placed the blame on Jeffrey company that had employed close to 22,000 people and had revenues of
Skilling and Andrew Fastow. nearly $101 billion in 2000, shortly before its downfall.
In line for a sell-off
While investigations continue, Enron has sought to salvage its business by TUTORIAL: Market Crashes
spinning off various assets.
It has filed for Chapter 11 bankruptcy, allowing it to reorganise while Enron Formed after Merger
protected from creditors. Enron was formed in 1985 following a merger between Houston Natural Gas
Former chief executive and chairman Kenneth Lay has resigned, and and Omaha-based InterNorth. Kenneth Lay, who had been the chief executive
restructuring expert Stephen Cooper has been brought in as interim chief officer (CEO) of Houston Natural Gas, became Enron's CEO and chairman,
executive. and quickly rebranded Enron into an energy trader and
supplier. Deregulation of the energy markets allowed companies to place bets fraud, as its shareholders lost $74 billion in the four years leading up to its
on future prices, and Enron was poised to take advantage. bankruptcy, and its employees lost billions in pension benefits. The Sarbanes-
Oxley Act has been called a "mirror image of Enron: the company's
Enron Named America's Most Innovative Company perceivedcorporate governance failings are matched virtually point for point
By 1993, Enron had set up a number of limited liability special purpose in the principal provisions of the Act." Increased regulation and oversight
entities that allowed Enron to hide its liabilities while growing its stock price. have been enacted to help prevent or eliminate corporate scandals of Enron's
Analysts were already criticizing Enron for "swimming in debt," but the magnitude.
company continued to grow developing a large network of natural gas
pipelines, and eventually moving into the pulp and paper and water sectors. (http://www.investopedia.com/financial-edge/1211/the-enron-collapse-a-look-
Enron was named "America's Most Innovative Company" by Fortune for six back.aspx)
consecutive years between 1996 and 2001.

Misleading Financial Accounts

Creative accounting allowed Enron to appear more powerful on paper than it
really was.Special purpose entities – subsidiaries that have a single purpose
and that did not need to be included in Enron's balance sheet – were used to
hide risky investment activities and financial losses. Forensic accounting later
determined that many of Enron's recorded assetsand profits were inflated, and
in some cases, completely fraudulent and nonexistent. Some of the company's
debts and losses were recorded in offshore entities, remaining absent from
Enron's financial statements.

During the late 1990s and into the early 2000s, more and more special purpose
vehicles were created that allowed the company to keep debts off the books
and inflate assets. These entities, along with other accounting loopholes and
poor financial reporting, let Enron ultimately hide billions in debt from special
deals and projects. (For more on corporate disclosure, read The Importance of
Corporate Transparency.)

Sell-Off
In August of 2001, shortly after the company achieved $100 billion in
revenues, then-CEO Jeff Skilling unexpectedly resigned, prompting Wall
Street to question the health of the company. Kenneth Lay once again took the
helm, and both Lay and Skilling, in addition to other Enron executives, began
selling large amounts of Enron stock as prices continued to drop – from a high
of about $90.00 per share earlier in the year, to less than a dollar. The
U.S. Securities and Exchange Commission (SEC) opened an investigation.
(For more on the structure of the commission, check out Policing The
Securities Market: An Overview Of The SEC.)

Dec. 2, 2001
Less than a week after a white knight takeover bid from Dynegy was called
off, Enron filed for bankruptcy protection. The company had more than $38
billion in outstanding debts. In the following months, the U.S. Justice
Department initiated a criminal investigation into Enron's bankruptcy. Several
Enron executives and Enron's auditor firm, Arthur Andersen, have since been
indicted for a variety of charges including obstruction of justice for shredding
documents and conspiracy to commit wire and securities fraud, and some have
been sentenced to prison.

New Regulations
Enron's collapse, and the financial havoc it wreaked on its shareholders and
employees, led to new regulations and legislation to promote the accuracy of
financial reporting for publicly held companies. In July of 2002, President
Bush signed into law the Sarbanes-Oxley Act, intended to "enhance corporate
responsibility, enhance financial disclosures and combat corporate and
accounting fraud." (For more on the 2002 Act, read How The Sarbanes-Oxley
Act Era Affected IPOs.)

The Act heightened the consequences for destroying, altering or fabricating

financial records, and for trying to defraud shareholders.

Enron Creditors Recovery Corp.

Once Enron's Plan of Reorganization was approved by the U.S. Bankruptcy
Court, the new board of directors changed Enron's name to Enron Creditors
Recovery Corp (ECRC) to reflect its sole mission: "to reorganize
and liquidate certain of the operations and assets of the 'pre-bankruptcy' Enron
for the benefit of creditors." The board wishes to "obtain the highest value
from the company's remaining assets and distribute the proceeds to the
company's creditors." After ECRC has finalized "outstanding litigation and
monetized all of assets, it will make a final distribution to creditors," and the
company "will cease to exist."

Conclusion
At the time of Enron's collapse, it was the biggest corporate bankruptcy ever
to hit the financial world. Since then WorldCom, Lehman Brothers and
Washington Mutual have surpassed Enron as the largest corporate
bankruptcies. The Enron scandal drew attention to accounting and corporate
Enron Report November 9
Enron shocked the world from being “America’s most innovative • Lay again talks to Treasury's O'Neill.
company” to America's biggest corporate bankruptcy at its time. At its
peak, Enron was America's seventh largest corporation and was by November 29
1992 the largest seller of natural gas in North America, their earnings • The SEC expands its investigation to include auditor Arthur
before interest and taxes was $122 million. Enron gave the illusion that Andersen.
it was a steady company with good revenue but that was not the case,
a large part of Enron’s profits were made of paper. This was made
possible by masterfully designed accounting and morally questionable December 2
acts by traders and executives. Deep debt and surfacing information • Enron files for bankruptcy.
about hiding losses gave the company big problems and in the late Stock Close: 26 cents
2001 Enron declared bankruptcy under Chapter 11 of the United
States Bankruptcy Code. December 12
• Andersen CEO Joseph Berardino testifies his firm discovered
Chronology of a Collapse "possible illegal acts" committed by Enron.
November 1997
• Enron buys out a partner's stake in a company called JEDI and sells January 9, 2002
the stake to a firm it creates, called Chewco, to be run by an Enron • The Justice Department launches a criminal investigation.
officer. Thus begins a complex series of transactions that enable Enron
to hide debts.
January 10
• Attorney General John Ashcroft rescues himself from the
February 20, 2001 investigation because of contributions he received from Enron.
• A FORTUNE story calls Enron a "largely impenetrable" company that Andersen acknowledges destroying Enron files.
is piling on debt while keeping Wall Street in the dark.
Stock Close: $75.09 Cause of Collapse
Accounting Problems
April 17 The conventional wisdom is that it was "innovative" accounting
• Enron chairman Ken Lay meets with Vice President Dick Cheney and practices and their consequences that started the tide of losses
other energy-policy officials; it's one of six such visits. that brought the energy giant down. Enron collapsed not so much
because it had gotten too big, but because it was perceived to be
August 14 much bigger than it really was in the first place. By decentralizing
• CEO Jeffrey Skilling resigns, becoming the sixth senior executive to its operations into numerous subsidiaries and shell corporations,
leave in a year. Lay says in a conference call with stock analysts, "I Enron was able to hide huge derivative losses that would have
never felt better about the company." He deflects analysts' pleas for halted its growth much sooner if widely understood. Publicly
more disclosure. They lower their ratings on Enron stock, which drops traded corporations are required to make their financial
in after-hours trading to a 52-week low. statements public, but Enron's finances were an impenetrable
Stock Close: $39.55 maze of carefully crafted imaginary transactions between itself
and its subsidiaries that masked its true financial state. In other
words, losses were held off the book by subsidiary companies,
October 12 while assets were stated.
• Arthur Andersen legal counsel instructs workers who audit Enron's
books to destroy all but the most basic documents. Fallout From Fraud
The auditor can commit fraud by knowingly issuing a more favorable audit
October 16 report than is warranted. This may occur when the auditor accepts a bribe or
• Enron reports a third-quarter loss of $618 million. Moody's investors bows to client pressure or threats as in the case of ESM Securities v.
Service indicates that it is considering lowering its credit rating on Alexander Grant (Maggin, 1989). The auditor can be unduly influenced by
Enron debt securities. having a direct or indirect financial interest in the client. For example, an
Stock Close: $33.84 auditor who is performing significant consulting engagements for an audit
client may be reluctant to insist on accounting adjustments because of the fear
October 22 of losing the client to another CPA firm as in the case of Enron v. Arthur
• Enron discloses that the Securities Exchange Commission has Andersen (Powers, 2002). Another example of this occurs in a weaker form
opened an inquiry. when the auditor is not performing any consulting but is still reluctant to stand
up to the client on accounting issues for fear of being fired.
October 24 Management Culture
• Chief financial officer Andrew Fastow, who ran some of Enron's Of course, the Enron fiasco did not happen by accident. It was
stealth partnerships, is replaced. facilitated by a corporate culture that encouraged greed and
fraud, as exemplified by the energy traders who extorted
October 26 California energy consumers. Rather than focus on creating real
• The Wall Street Journal reports the existence of the Chewco value, management's only goal was in maintaining the
partnerships run by an Enron manager. Ken Lay calls Fed Chairman appearance of value, and therefore a rising stock price. This was
Alan Greenspan to alert him of the company's problems. exacerbated by a fiercely competitive corporate culture that
Stock Close: $15.40 rewarded results at any cost. Some divisions of Enron replaced
as much as 15 percent of its work force annually, leaving
October 28 employees to scramble for any advantage they could find to
• Lay calls Treasury Secretary Paul O'Neill. In October and November, justify their continued employment.
Enron's president phones an O'Neill deputy at least six times, seeking
help. Preferential Treatment
While the internal integrity of the company remained thusly
challenged, the facade was the exact opposite. The company
October 29
leveraged political connections in both the Clinton and Bush
• Lay calls Commerce Secretary Donald Evans, suggesting he help
administrations, as well as on Wall Street, for preferential
Enron.
treatment and the air of legitimacy that allowed it to perpetrate its
frauds. In this context, the accounting practices widely
November 8 considered the cause of the Enron collapse can be seen as just a
• Enron admits accounting errors, infalting income by $586 million symptom of a larger management culture that exemplified the
since 1997. dark side of American capitalism.
Prevention not exist in Germany.lix In Britain, auditors grew more dependent on
Bar auditor conflicts. the expertise of accountants over the years until the audit function
The big auditing firms already have promised major changes in the way they became dominated by the accounting profession. The concepts of
do business. Most will no longer act as internal and external auditors for the “auditing” and “accounting” are often used interchangeably in Britain.lxi
same firm. Two of the three major accounting firms that still act as consultants Where there is potential for conflicts of interest to arise, it may be well
will no longer sell many of those services to the same companies they audit. worth reducing the use of external auditors in such circumstances. As
Putting distance between accountants and the companies they audit should stated by Polizatto. the appropriateness of delegating on-site
increase public confidence in the auditors' judgments. Those restrictions inspections to external auditors would very much depend on an
should be imposed by the government and monitored by the U.S. Securities assessment of whether it is best able to perform the on-site verification
and Exchange Commission. Former SEC chairman Arthur Levitt attempted to function. This requires consideration of factors such as skills,
enact such reforms but was rebuffed by the industry's strong lobbying efforts competence, experience and independence from political or other
in Washington. influence.

Increase disclosure. However, weighing the immense benefits which external auditors
The public needs more information about the financial relationships of contribute to the supervisory process, it could be worthwhile
executives and board members of publicly traded companies. Do executives implementing a law like that of Sarbanes Oxley in Britain. The
have investments in corporate subsidiaries? Do board members have outside Sarbanes Oxley Act would discourage the dual role of auditors and
jobs with groups financed by the company? Are financial ties allowed to exist reporting accountants/skilled persons thereby encouraging greater use
between board members, executives and employees? One problem found by of external auditors within the financial supervisory
the Enron board was that many in a position to blow the whistle were process.
apparently compromised by their own sweetheart deals.

Tighten ethics rules.

Disclosure aside, companies need to build higher walls between their boards
and senior management. In Enron's case, the board's own investigative panel
faulted directors for not doing their job. While some information was kept
from the board, the controls over management "were not adequate, and they
were not adequately implemented," the board's investigative panel found.
Even the best organizational checks mean nothing if board members lack the
skills, time or independence to do their job. As Arthur Andersen, Enron's
former auditor, showed, accountants cannot be left as the final backstop.

Set new standards.

The accounting industry's practice of self-policing should be ceded to the
SEC. The public interest in the integrity of the markets is clear. Enron also
exposed a fundamental weakness in accounting standards; one idea proposed
by reformers is a process whereby auditors could alert the investing public to
companies that push the accounting envelope. Tougher conduct codes also
should apply to stock analysts and investment brokers.

The administration and Congress also are considering a range of ways to

protect small investors whose portfolios are dominated by an individual stock.
That could have blunted the losses of Enron employees who had company
stock in their retirement plan. Another idea is to create a fund to reimburse
shareholders who fall victim to corporate duplicity. Also, more regulation
certainly is needed of the energy futures trading business.

Sure, kicking around Ken Lay and other former Enron executives may satisfy
the blood lust back at home, but where was the concern in Congress for these
reforms when Enron was flush a year or two ago? The public doesn't need
politicians to add to the heat. Instead, it needs a clear, detailed and workable
plan for preventing this from happening again.

External Auditor
Mandatory rotation of audit firms
The risk of having an auditor becoming too familiar with a particular
business, hence becoming too close to a company and compromising
his independence is the main reason why mandatory rotation of audit
firms has been proposed. Whilst supporters of mandatory rotation
believe that the auditor's independence would be strengthened as a
result of making companies change their auditor after a fixed period of
years, many have opposed the idea of mandatory rotation, arguing that
it is a costly exercise.

Having considered these points, reasons for using external auditors in

more capacities than others may be justified across different
jurisdictions. The reason for Britain's FSA's reduced use of external
auditors within the banking supervisory process may well be as a result
of greater potential for conflicts of interest. According to research on
how European arrangements differ from the UK, the dual role of
auditors and reporting accountants/skilled persons directly comparable
to that of the UK does not exist at European level.lvii One significant
difference between the auditing professions in Germany and Britain is
the existence of auditing as a distinct profession in Germany.lviii The
Wirtschaftspruefer is a qualified auditor and in contrast to Britain, an
accounting profession does