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Accounting - Essay Example

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Accounting fraud is the falsifying of an organization’s financial records pertaining to its income, sales, liabilities in order to inflate its profits or assets when its actually running at a loss. Enron’s fraud is among America’s landmark cases which resulted to its…
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Download file to see previous pages According to Bierman 24 besides building power plants, buying and selling of natural gas and electricity; the company also developed new markets like internet bandwidths, weather futures, pulp and paper business, water plants and oddball products which provided broadcast time for marketers which rocketed its financial incomes. Between the periods of 1995 to 2000, its revenues rose from $9 billion to an impressive $100 billion. The company won America’s most innovative company by Fortunes Most Admired Companies Survey for six years straight which added to its successful reputation.
The accounting system required that the company’s future profits were to be estimated at present value based on the signing of its long term contracts. The system was introduced by the joining CEO Jeffery Skilling, who ordered the company’s reporting system to be changed from its actual sales and supply of its natural gas to the new system. The mark to market accounting estimations were in reference to the future net value of the cash flows which were often difficult to predict. This included estimated Enron’s projects’ incomes that were irrespective of whether they were received or not and if changes were made like additional losses or incomes, they would be incorporated in subsequent periods. Enron Incorporation was the first non financial company to be given approval by the Securities and Exchange Commission (SEC) use the system. Due to the numerous discrepancies in matching their cash and profits; the shareholders were given false reports. Therefore, a strategy to appease the investors was created (Bierman 45).
Based on Bierman 55 the company executed pressure on its traders in order to forecast low discount rates and high future cash-flows on long-term contracts with the company. In essence, the difference margin between the original paid value and the present calculated net value was the company’s profit. Contrarily, the estimated net ...Download file to see next pagesRead More
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