Enron Scandal and Stakeholders Introduction The study is related to the Enron Scandal which has impacted various stake holders as the acts or policies that were being implemented, or followed by the Enron Corporation was to get profits from illegitimate means.
Informed decisions include assessing the quality of the information provided not just the information itself.
Professional Skepticism Being responsible to ensure quality, I work hard to maintain my professional skepticism.
According to Auditing Standards professional skepticism "is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence".
One way that I maintain my professional skepticism is by reading about audit and business failures. One of my recent books, "The Smartest Guys in the Room: These practices included using mark to market accounting to record assets at their fair value based on current market prices.
This treatment allowed the company to immediately recognize the profits in a twenty year natural gas delivery contract instead of over twenty years on delivery of the natural gas to the customer. Other acceptable practices included the use of special purpose entities SPE which are legal entities that fulfill narrow or temporary objectives of a company.
For example, a group of companies could have a payroll service company whose sole purpose is to process and pay employees of the group. The company started to break accounting rules when it tried to maintain the momentum caused by its aggressive accounting practices.
The idea that acceptable accounting practices helped push Enron over the edge was one of the contributing factors to the introduction of the Sarbanes Oxley Act.
It was created to reform public company accounting to protect investors. In addition to Sarbanes Oxley, U. These modifications included altering the accounting treatment of special purpose entities SPEscalled variable interest entities VIEs in Canada.
Enron used SPEs to aggressively move debt off its balance and recognize revenue early from the sales of assets. The combination of less debt and higher revenues helped Enron increase its share price.
Companies are required to report under these new accounting standards in any financial statements with years ending on or after January 1, The new standards are rigorous and are expected to result in the recognition of a greater number of subsidiaries in consolidated financial statements.
Financial statements should be stronger from the change in standards. If financial statements are now stronger, why does removing any discussion of variable interest entities matter? The changes in ASPE integrate the concept of VIEs, but have removed the name variable interest entity, which shows that the world has moved on from Enron.
The Impact of Accounting Standards Accounting standards can have both expected and unexpected consequences to your operations. We are happy to discuss accounting standards and their implications with you, including helping you assess any possible issues with the upcoming change in standards for the treatment of subsidiaries under Accounting Standards for Private Enterprises.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. To print this article, all you need is to be registered on Mondaq. Click to Login as an existing user or Register so you can print this article.The Accounting Scandal Enron Corp.
Collapse and WorldCom Accounting Scandal 11/18/ The Enron Corp. collapse Formed in from a merger of Houston Natural Gas and Inter-north, Enron Corp.
was the first nationwide natural gas pipeline network. Over time, the firm’s business focus shifted from the regulated transportation of natural gas to. Accounting Scandals: Does “Rules vs.
Principles” Matter? Recent developments have which type of accounting standards to follow in reporting their financial performance.1 In addition, did not report any accounting scandal during this period are excluded: Austria, Belgium, Denmark, Germany, Greece.
The Financial Accounting Standards Board’s (FASB) emerging issues task force has debated the subject of how to value and disclose energy-related contracts for several years. The scandal threatens to undermine confidence in financial markets in the United States and abroad. The impact of Enron is now being felt at the highest levels of.
Accounting Reform After Enron: Issues in the th Congress , the Financial Accounting Standards Board (FASB 2), This provision would result in many options having a value of zero, and thus the bottom line impact of many expensed options would also be zero.
3 1 Federal Reserve Board’s Second Monetary Policy Report for Enron scandal is considered as a corporate White Collar crime as it is an instance of insider trading and corporate fraud. Basically, the executives of Enron were involved in “cooking the books” whereby they were able to overstate the value of the company.
(1) joint hearing: the enron collapse: impact on investors and financial markets wednesday, december 12, u.s. house of representatives, subcommittee on capital markets, insurance and government sponsored enterprises, joint with the subcommittee on oversight and investigations, committee on financial services, washington, dc.