. Accounting principles generally forbid a company from recognizing an increase in the value of its...

. Accounting principles generally forbid a company from recognizing an increase in the value of its capital stock in its income statement” Explain the above accounting statement based on Enron case. How Enron disrupt or volatile the above statement?

Solutions

Expert Solution

Conservative principle of accounting state that provide for all possible losses but don’t recognize any income till it is realized that is if there is any increase in the value of any assets, we cannot recognize the same due to the fact that it is assumed that firm will continue in future following going concern principle of accounting and another thing that same are to be shown at historical cost only unless there are such circumstances which put doubt on the existence of firm in near future. Conservatism Principle is a concept in accounting under GAAP which recognises and records expenses and liabilities-certain or uncertain in nature, as soon as possible but recognises revenues and assets when they are assured of being received. It gives a clear guidance in recording cases of uncertainty and estimates. It is due to this principle that closing stock is valued at cost or market price whichever is less so that if there is any fall in market price which is below the cost , then same can be recognized in order to make financial statements more accurate and realistic.

How Enron disrupt or volatile the above statement?

The Enron Board of Directors failed to safeguard Enron shareholders and contributed to the collapse of the seventh largest public company in the United States, by allowing Enron to engage in high risk accounting, inappropriate conflict of interest transactions, extensive undisclosed off-the- books activities, and excessive executive compensation. The Board witnessed numerous indications of questionable practices by Enron management over several years, but chose to ignore them to the detriment of Enron shareholders, employees and business associates. These facts clearly show that financial statements were manipulated in order to show desired financial results.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

What parts of Generally Accepted Accounting Principles, are not generally accepted?

Do you believe Enron's accounting treatment fell within Generally Accepted Accounting Principles (that is Generally Aaccepted...

Do you believe Enron's accounting treatment fell within Generally Accepted Accounting Principles (that is Generally Aaccepted Aaccounting Principles in the year 2000, not Generally Aceepted Accounting Principles of today)?

When financial statements are affected by a material departure from generally accepted accounting principles, the auditors...

When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should: A. Issue an "except for" qualification or a disclaimer of opinion. B. Withdraw from the engagement. C. Issue an unmodified opinion with a basis for modification paragraph. D. Issue an "except for" qualification or an adverse opinion.

Prepare a chronology of generally accepted accounting principles (US, GAAP).

Auditors must be concerned with both generally accepted auditing standards and generally accepted accounting principles in...

Auditors must be concerned with both generally accepted auditing standards and generally accepted accounting principles in performing an audit. Compare generally accepted auditing standards with generally accepted accounting principles. Summarize two of the three generally accepted auditing standards known as the general standards. . Note: The answer must be 400 to 500 words please

The Financial Accounting Standards Board is the primary source of generally accepted accounting principles (GAAP) for...

The Financial Accounting Standards Board is the primary source of generally accepted accounting principles (GAAP) for all health care organizations. Do you agree with this statement? Why or why not?

A new client, the Wolf Company, asks your advice concerning the point in time that the company should recognize revenue from the rental of its office buildings under generally accepted accounting principles.

A new client, the Wolf Company, asks your advice concerning the point in time that the company should recognize revenue from the rental of its office buildings under generally accepted accounting principles. Renters usually pay rent on a quarterly basis at the beginning of the quarter. The owners contend that the critical event that motivates revenue recognition should be the date the cash is received from renters. After all, the money is in hand and is very seldom returned. ...

Fife Company prepares quarterly reports following generally accepted accounting principles. For each of the items below,...

Fife Company prepares quarterly reports following generally accepted accounting principles. For each of the items below, state whether the method is in conformity with generally accepted accounting principles with an explanation of your answer and appropriate justification: Fife takes a physical inventory at year-end for annual financial statements. Inventory and cost of sales reported in quarterly reports are based on estimated gross profit rates. Fife does have reliable perpetual inventory records. The company records income tax expense for each quarter...

1. Accounting is subject to the rules of Generally Accepted Accounting Principles (GAAP), which sets provisions...

1. Accounting is subject to the rules of Generally Accepted Accounting Principles (GAAP), which sets provisions for how accounting information is presented. Sometimes, GAAP requires actions that affect reported financial results, think revemue recognition, reserves for doubtful accounts, alternative depreciation methods, accounting for taxes. Do accounting profits provide a good measure of business performance? Why or why not? 2. The goal of financial management is to maximize the wealth of the shareholders. Do you think management should focus more on...

Currently, the two major sets of rules related to accounting are Generally Accepted Accounting Principles (GAAP)...

Currently, the two major sets of rules related to accounting are Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). How do the two systems differ? How are they similar? Do you think that GAAP and IFRS should converge? Explain. Your initial post should be 250-500 words, include at least one reference, and demonstrate solid academic writing skills.

Subjects