Enron
Special purpose entries (SPE’s) the money borrowed from banks did not show up on Enron’s books because of the partnership status as separate entities. Enron’s management transferred assets (and any related debt) to the special purpose entities at an appraised value above the net cost of the assets, recording a gain on the transfer. Such transactions would have an effect on increasing Enron’s net assets the transaction involves no cash receipts the only way it increases cash flow is by Moving debt off the balance sheet and increasing equity, thus improving the company’s ability to borrow more funds. The recorded gain increases its return on assets thereby enhancing its earnings performance and stock prices, as well as its ability to borrow.Enron made special purpose entries to conceal loses and increase its ability to borrow money. What are three criteria necessary to avoid fraudulent financial reporting, and how did Enron’s management comply or not comply with each? • Technical Compliance: a transaction must be recorded in accordance with generally accepted accounting principles (GAAP). Enron may have met the first criteria because its transactions were apparently recorded in technical compliance with GAAP. But,
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Peter Lynch, Enron Enron’s, GAAP Enron, , SPEs Enron’s, Third Enron, Technical Compliance, economic substance, lower level employees, ability borrow, special purpose, financial statements, lower level, enron’s demise, technical compliance, corporate citizenship, level employees, transparent reader, special purpose entries,
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Approximate Word count = 1893
Approximate Pages = 8 (250 words per page double spaced)
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