Enron The Financial Statement - 1461 Words

Enron was one of the biggest scandals in accounting history. Enron covered all their troubled assets in complex SPE s which then made their financial statements look appealing to potential investors. The auditor was also pressured into providing a complex financial statement that was very hard to read. Nearing the end, Enron used SPE s to cover troubled assets that were falling in value, transferring these assets meant their losses would be kept off the financial statement. The general guideline at the time of FASB was that only 3% of SPE s could be owned by an outside investor. Enron used many SPE s to increase capital and to park troubled assets, so they do not appear in the financial statement. This in turn increased the cash flow and profit on the financial statements, making it look like a low risk investment for investors. Enron incorporated mark-to-market accounting for their business in 1995 and used it for their trading transactions. As stated in (Journal of Accountancy, 2015) Under mark-to-market rules, whenever companies have outstanding energy-related or other derivative contracts (either assets or liabilities) on their balance sheets at the end of a particular quarter, they must adjust them to fair market value, booking unrealised gains or losses to the income statement of the period. A difficulty with application of these rules in accounting for long-term futures contracts in commodities such as gas is that there are often no quoted prices upon which toShow MoreRelatedFinancial Statement Analysis : Enron Corp1371 Words   |  6 Pages Enron Corp. (Enron), headquartered in Houston, Texas, is the subject of an equity report published on January 26, 2001 by two Bear Stearns’ equity analysts, Robert K. Winters, and Robert D. Franson. Enron is comprised of four major business segments: wholesale energy operations and services; retail energy services; broadband services; and transportation and distribution services. This paper examines the approach of the analysts, the components used to value the company, and finally, the conclusionRead MoreDetecting Financial Statement Fraud : The Collapse Of Enron Corporation2216 Words   |  9 PagesDetecting Financial Statement Fraud The dramatic collapse of Enron Corporation, following the series of disclosures of accounting improprieties, leads to questions regarding the soundness of accounting and financial reporting standards, and contributing factors to financial statement fraud. One question relates to important internal controls ignored in the creation of special purpose entities such as LJM1 by Enron. Another question relates to how Enron’s harsh Performance Review Committee mightRead MoreEnron : The Largest Energy Trader1669 Words   |  7 PagesEnron was the largest company for energy and natural gas made possible through the merging of Houston Natural Gas and InterNorth based in Omaha. 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After Houston Natural Gas merged with InterNorth, the former chairman of Houston Natural Gas, Kenneth Lay, was appointed as CEO of Enron. The Chief Executive Officer of Enron, Kenneth Lay’s ultimate goal was to make Enron â€Å"the world’s greatest company,† but unfortunately he failed to achieve his goa l. During the 1990s, Enron wasRead MoreThe Enron Scandal Of Enron1052 Words   |  5 Pagesaccounting firms have long played a role in convincing the public the authenticity of the corporates’ financial statements. However, the public started to become skeptical about accountants’ reliability when the Enron scandal occurred. In October 2001, SEC started an investigation against Enron for improper accounting practice. According Sherron S. Watkins, the former vice president for corporate development, Enron failed to disclose complicated deals with its partnerships to inflate the stock price. In aRead MoreEnron1042 Words   |  5 PagesLJM1 was created? 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Outsiders owned less than 3% of the Special Purpose Entities equities. There wasRead MoreSarbanes Oxley Act Of 20021410 Words   |  6 PagesThe Sarbanes-Oxley Act of 2002, also known as the SOX Act, is enacted on July 30, 2002 by Congress as a result of some major accounting frauds such as Enron and WorldCom. The main objective of this act is to recover the investors’ trust in the stock market, and to prevent and detect corporate accounting fraud. I will discuss the background of Sarbanes-Oxley Act, and why it became necessary in the first section of this paper. The second section will be the act’s regulations for the management, external