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EMRON
EMRON
Question:-1 what was the problem of Enron? Answer the question on the
perspective of conceptual frame-work of accounting.
Answer: In case of effective financial reporting every company should concern
information that is useful for the potential and existing investors and creditors.
Reliability and relevance are two major qualitative characteristics of financial
statement that make them more useful to potential creditors and investors. Enrons
financial statements were full of fake information. They have overstated growth of
annual earning by 15-20%. They have shown success in their business units and
hided large losses , white downs and other negative information about business
unit number of information Enron has given does not match the reality Andrew
Fastow, Enrons now-imprisoned former finance chief, testified that many of the
banks transactions were contrived, deceptive deals done solely to create the false
appearance of profits and cash flow. and thus they lack of representative
faithfulness. Because of this misrepresentation of data audit firms employed by SEC
(Security Exchange Commission) came up with different result, Enron lack of
variability. Enrons financial statements also was full of biasness. To rise stock prices
Enron reported false growth in retained earnings. They also concealed large amount
of losses with the organization. They also deceived credit rating agencies in order to
maintain investment grade credit ratings. All this effort proves biasness in financial
reporting. Enrons financial statements were not reliable.