Accounting Fraud: Enron Accounting Scandal - Term Paper Example

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The research focuses on the study of the Enron accounting scandal. The research delved into Enron’s window-dressing of its financial statements to present a more favorable balance sheet and income statement…
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Accounting Fraud: Enron Accounting Scandal
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Download file to see previous pages The research also focuses on the liability of the Enron external auditor, Arthur Andersen. The research is divided into investigation, resolution, and prevention. Accounting fraud can be prevented. Investigation. Paul Clikeman (9) emphasized some accounting scandals took place when it should not have happened. The organizational officers should show and act as trustworthy persons at all times. The investigations show one of Enron’s Accounting Staff, Margaret Ceconi, discovered huge discrepancies in the numbers presented in the financial statements. The biggest losers of the Enron financial statement fraud were the stockholders (investors) and the employees, who lost their nice comfortable jobs. Clikeman (7) reiterated the investigation found that the scandal –tainted officers presented a deceitful illusion of a company that was generating huge profits through the use of several factors. First, the Enron officers implemented smart and scrupulous management tactics to pursue their evil deeds. Next, the board of directors backed the sinister plans of the Enron officers. As discussed, Arthur Andersen failed in its duty report the fraudulent transactions of the Enron officers. ...
Off balance sheet accounts means that the company hid from the public some of the accounts. For example: the basic accounting equation is: assets = liabilities + stockholders equity. Using this equation, the company’s total assets can easily be computed by adding the total liabilities (for example $1 million) and the total stockholders’ equity of $4.5 million). Thus, the company’s total assets are $4.5 million. With the introduction of off balance sheet accounting, one fraudulent practice would be the liabilities as assets or stockholders’ equity items. Consequently, the assets and the stockholder’s equity accounts will fraudulently increase. Specifically, the investigation discovered that Enron had incurred large amounts of liabilities in its plan to invest in capital expenditure amounts. The capital expenditure amounts were distributed among power plants, pipelines, water, electronic commerce, metals, and broadband technologies. Most of Enron’s growth businesses required large amounts of cash inflows or investments. The investments placed an insurmountable pressure on the Enron management 2000 financial statement targets. The targets included $1 billion of net income for the year 2000 alone, 15 percent average compound annual growth, and double digit growth in each individual year, and cash inflows to pay for its ballooning liabilities. Likewise, the Enron Company had to enter into credit transactions to ensure the company had enough means to pay energy contracts being traded on its online trading market. Enron suffered unnerving fluctuations in its credit ratings due to its failure to comply with all debts obligations on time. The Enron poor credit rating increased Enron’s to obtain new long term loans. ...Download file to see next pagesRead More
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