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)?

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Expert Solution

No.

It hadn’t been fell within the Generally Accepted Accounting principles exist in the year 2010 as Enron’s Scandal was emerged by way of using accounting loopholes, incorrect accounting practices and poor financial reporting which were certainly against the Generally Accepted Accounting principles.

The key Accounting areas in which the scandal has taken place are stated hereunder;

Revenue Recognition: Enron being an agent too of some traders had reported the entire sales value as Revenue although it was allowed to report only commission received as revenue as per Generally Accepted Accounting principles.

Mark-to-Market Accounting: Enron was the first non-financial company to use the Mark-to-Market method to account for its complex long-term contracts. Mark-to-market accounting requires once a long-term contract is signed, income is estimated as the present value of net future cash flow. However Enron had recorded income from such contracts although it might not have ever received the money, and in turn increase the fictitious financial earnings in the books which is also not in accordance with Generally Accepted Accounting principles.

ekkarill92 answered 1 year ago

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