Term Paper: Accounting of Enron

Pages: 5 (1496 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Accounting  ·  Buy This Paper

SAMPLE EXCERPT:

[. . .] When a company fails to "fully disclose" information they have failed to comply with the regulations set forth by the SEC. The Journal of Accountancy writes,

Methods the company used to disclose (or creatively obscure) its complicated financial dealings were erroneous and, in the view of some, downright deceptive. The company's lack of transparency in reporting its financial affairs, followed by financial restatements disclosing billions of dollars of omitted liabilities and losses, contributed to its demise." (Thomas)

Enron failed to fully disclose information when they did not disclose the true debt exposure of the company, when they formed these erroneous SPE's which served no other purpose than to hide the debt, when they were not honest with investors about the accounting practices that the company used and when top executives received large amounts of money from these nonexistent entities. In fact the CEO of the company borrowed $7.5 million from the company and sold off stock to repay the company.

When Enron made the decision to create SPE's that were erroneous and therefore lacking legality under the SEC rules, their actions were unethical. Enron deceived the people providing capital so that the company could continue to operate. In addition. The top executives of the company made millions in the process. Simply put Enron deceived shareholders so that top executives could make millions of dollars.

In addition to the accountancy fraud Enron's unethical decision also affected millions of people who were not even employed by Enron. The people that were employed by Not only did Enron behave unethically but the entire market failed to inform consumers. This market failure was made by the very institutions that were designed to protect investors. In this case the implications for the accounting firm that was involved proved to be insurmountable. The Andersen Accounting firm was disbanded as a result of its actions in the Enron case. Accountants must be very cognizant of the fact that there decision to be honest or dishonest about a firms' financial dealings may have a profound effect on stakeholders and the accountants themselves. "Accountants and many Wall Street Analysts ratified and legitimized the company's scenarios and statements regarding prospects."(Berenbeim)

In wake of the Enron Debacle the SEC has made the following provisions to the rules of full disclosure for publicly owned corporations

The system will include "current" disclosures, which are supplemented and updated on a quarterly basis and annual disclosure of relevant information on a real-time basis.(Thomas)

Full Public company disclosure of relevant current "trend" and "evaluative" data and historical data. (Thomas)

Firms must identify their "most critical accounting principles" their annual financial reports. (Thomas)

The private sector must set Accounting standards that are timely and respective.

The SEC and registrants must cooperate in a manner that persuade publicly owned companies and their auditors to ask about disclosure issues before financial reports are made public. (Thomas)

An effective and transparent system of self-regulation for the accounting profession, subject to SEC's rigorous, but nonduplicative, oversight." (Thomas)

Oversight provided by audit committees who are versed in financial accounting principles and their applications. (Thomas)

In addition to the new guidelines the CEOs of the five most prominent accounting firms made a joint statement on December 4, 2001. The statement asserted that the firms were committed to ensuring the full disclosure of related party transactions, relevant market risk and Special Purpose Entities. The CEO's also requested that the financial reporting system be reformed to make financial disclosure more relevant and timely and that financial reports include nonfinancial information concerning the performance of an organizations SPE's.

Conclusion

This investigation has explored the Enron Corporation and the unethical decisions that the company made. We found that the company intentionally used Special Purpose entities to deceive investors and hide debt. We concluded that these actions were unethical and that the accountants failed to do their jobs which resulted in the disbandment of the Andersen Accounting Firm. Finally we discussed the new SEC guidelines for full disclosure.

Works Cited

Berenbeim, Ronald. "The Enron Ethics Breakdown." Executive Action. February 2002. volume no.15.

Horn, Charles. "IN DEFENSE OF MODERATION: AVOIDING OVERREGULATION OF "SPECIAL PURPOSE ENTITIES." Legal Backgrounder. September 20, 2002 Vol. 17 No. 39.

Thomas, William. "The Rise and Fall of Enron: When a company; looks to good to be true it Usually is." The Journal of Accountancy. April 2002.

Special Purpose Entities are Often a Clever Way to Raise Debt… [END OF PREVIEW]

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Accounting of Enron.  (2002, November 12).  Retrieved April 19, 2019, from https://www.essaytown.com/subjects/paper/accounting-enron-recent/4271844

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"Accounting of Enron."  Essaytown.com.  November 12, 2002.  Accessed April 19, 2019.
https://www.essaytown.com/subjects/paper/accounting-enron-recent/4271844.