Enron and Related Party Transactions - Assignment Example

Enron and Related Party Transactions The senior executives in Enron engaged in deception over a broad scheme to deceive the investigating public by giving much statement about the company’s earnings and their cash flows. The executives were also engaged in concealing debts in relevant filed periodic reports for the commission. The deceitful scheme was carried out through financings in off balance sheets, different complicated structured transactions, relevant party transactions as well as through some misleading disclosures plus a broad abuse of some accepted principles of accounts. Andersen served as the company’s auditor and he consequently issued an auditor’s report that stated that all-financial statements had been presented fairly with respect to all materials and in accordance to the GAAP. Duncan was the global engagement partner for the Enron’s audits. He held such responsibilities as determining whether an unqualified opinion should be issued within the report of the auditor. The main official responsibility of Duncan was to ensure that all auditors’ reports about the financial statements were relevant and true before he could sign them. Duncan held full responsibility on the approval for all business documents and financial statements and the Enron’s annual reports on the forms 10-k that had been filed with the commission for years 1998 to 200 consecutively. In addition, Duncan was supposed to design and implement auditing procedures that were adequate in addressing the total risks essential in the Enron engagement. He was supposed to perform tests and other procedures to obtain competent and sufficient evident matter. He was supposed to properly supervise the audits for Enron (Markham & Jerry 92). Duncan was responsible for determining whether the unqualified opinions were supposed to be issued within the auditor’s report. For the ended years, however, Duncan did not perform his duty in due diligence. He was not careful to note that the auditor’s reports he had signed on behalf of Andersen were misleading and materially false. Duncan had carelessly signed the unqualified auditor’s reports with little concern on observing their relevance. This action was alleged as being against the Securities Exchange Act of section 10 (b) as well as being against rule 10b-5. Duncan failed to ensure that the engagement team audited Enron’s prepay transactions according to the GAAS and also failed to make sure that Enron adequately disclose and presented the prepay transactions in its financial statements. With respect to the AU Section 316, with consideration of Fraud in a financial statement audit, the Anderson team identified several risk factors. Andersen identified the Fraud risk at Enron as well as the engagement team that documented that many risks were available with Enron. For instance, questioners that were prepared by the engagement team demonstrated that Enron placed emphases that were undue on meeting earnings targets. Enron also used highly destructive accounting practices. Another risk that had been identified is that Enron used uncommon year-end dealings that posed difficult substance over form enquiries. The misleading statements that Duncan had signed had some social-economic consequences of that, the financial statements were not performed with respect to GAAS and that his financial statements did not present Enron’s outcomes of operations, their financial position, cash flows and changes in the equity with respect to the GAAP. This action demonstrated Duncan recklessness that is a social problem associated with the Enron. Much of the Enron’s quarterly earnings were ascribed to unrealized achievements in its merchant energy portfolio as well as in various technology investments (Markham & Jerry 86). Part II- related party transactions A related party transaction can be explained as a business arrangement or deal between two parties joined by a certain relationship prior to the arrangement or the deal. A business transaction between a corporation and major shareholder renovation to the offices of the corporation can serve as a good example. Public companies in America are required to release all transactions with such related parties as associates, their family members and executives in their annual 10-k reports. The special relationship between the parties creates a potential conflict of interest that may result in benefiting actions to the people involved. For instance, in the Enron scandal, the related party transactions were supposed to assist the company in misreporting their accounting numbers. Related parties also include; members of the entity, principle owners of the entity and their immediate family members, entity management and their immediate family members and entities whereby investments in the securities of equity are required. Parties with which entities can deal in a place where one party controls or can influence the operating policies or the management of the other to a certain extend that one of the transacting parties can be prevented from carrying on with its own separate interests. Nine related party transactions are listed in the form 10-k about the Enron Corp with their relevant information as shown below. FORM 10-K 10-K 320191 2 MATERIAL CONTRACTS exh1051.txt EX-10 27195 3 MATERIAL CONTRACTS exh1053.txt EX-10 10455 4 STATEMENT REGARDING COMPUTATION OF RATIOS ex12.txt EX-12 1690 5 SUBSIDIARIES OF THE REGISTRANT exh21.txt EX-21 205511 6 CONSENTS OF EXPERTS AND COUNSEL ex-23.txt EX-23 1084 7 CONSENTS OF EXPERTS AND COUNSEL exh23_02.txt EX-23 1114 8 POWER OF ATTORNEY exh24.txt EX-24 26717 9 FINANCIAL STATEMENTS OF ATLANTIC WATER TRUST atlantic.txt EX-99 115692 The provided information about Pepsico is about their discussion and analysis as an integral part of their consolidated financial statements (Markham & Jerry 36).Their executive overview as the leading global snack, food and beverage company is another information provided as a related party. Other relevant information is on their brands and their unique performance with a specific purpose. Their unique purpose is mentioned as being to invest in a healthier future for all people and the planet. Their specific goal being to build a well balanced portfolio of awesome and enjoyable foods and beverages. The total revenue attributed to the associated with Pepsi is analyzed with respect to the chart below: Statement Of Income Alternative (USD $) In Millions, except Per Share data 12 Months Ended Net Revenue $ 43,232 $ 43,251 $ 39,474 Cost of sales 20,099 20,351 18,038 Selling, general and administrative expenses 15,026 15,877 14,196 Amortization of intangible assets 63 64 58 Operating Profit 8,044 6,959 7,182 Bottling equity income 365 374 560 Interest expense (397) (329) (224) Interest income 67 41 125 Income before Income Taxes 8,079 7,045 7,643 Provision for Income Taxes 2,100 1,879 1,973 Net Income 5,979 5,166 5,670 Less: Net income attributable to non-controlling interests 33 24 12 Net Income Attributable to PepsiCo $ 5,946 $ 5,142 $ 5,658 Net-Income Attributable to PepsiCo per Common Share       Basic $ 3.81 $ 3.26 $ 3.48 Diluted $ 3.77 $ 3.21 $ 3.41 The reflection made from the Pepsi vs the Enron is that the special relationship between the parties creates a potential conflict of interests that may result in benefiting actions to the people involved. Works cited Markham, Jerry W. A Financial History of Modern U.S. Corporate Scandals: From Enron to Reform. Armonk, N.Y. [u.a.: Sharpe, 2005. Print. Read More