Accounting management help on: Frensic accounting of Enron
Q??Frensic accounting of Enron??
Solution attached:
Enron has been very aggressive in its accounting–most notably the Raptor transactions and the Condor vehicle. It can be seen that Enron was very violent in its practices of the accounting mainly the transactions with Raptor & the Condor. It has been analyzed that memos written by Enron executive Sherron Watkins to Enron Chairman Ken Lay according to Watkins footnotes don’t sufficiently define the transactions (Robert, 2003).According to his perspective if footnotes are sufficiently explained, then the investor would familiar with the entities explained in the footnote of the related party are capitalized, the holders of the equity have no role in the contest, & all the excellence and the value in the business entities come from the values of the underlying derivatives, stock and Net Profit of the Enron. According to the Watkins, he did not believe that any other Companies could have inserted into the transactions of the equity derivative with the Enron at the similar price and without adequate premium. It has been analyzed that the Raptor viewed as the big bet if the underlying type of stock did well, then nobody could be the cleverer. According to the Watkins, if the stock of the Enron did good, then issuance of the stock to the various entities could reduce & the transaction could be few noticeable. It has been analyzed that the Watkins believed that the management & administration of the Enron should have an apparent & clear knowledge of the transactions and the management should have the transaction viewed by the experts in the areas of the accounting & law. According to Watkins, Mr. Ken Lay had the right to analyze for him and what he believed the chances of detection and predicted damages to the Enron from discoveries & make one or two plan of actions. The entities of Raptor were bankrupt, the value & excellence of the Enron Share was equal or below the account payable of PRM which Raptor owed Enron (Healy& Krishna, 2003). The inception of the Raptor’s to date for the statement of the income was $ 500 million of loss. It can be seen that the LJM was entirely dependant on the cash to cash basis. The value of $ 500 million came from the shares of the Enron. Watkins analyzed that why the Company did not book the transaction of $ 500 million in a contract of shares to the entity Raptor and value of 500 million in the economic interest of the entity (Akerlof, 1970). According to Watkins, the Enron could have a write down of the value in the entity of the Raptor. The chance of finding was low enough and the predicted destruction too huge, hence the Company found a path to promptly reverse, write down the possible transactions. The chance of finding was too huge, the predicted destruction to the Enron, too huge, the Company form damage plans of containment. Watkins believed that the chance of finding considerably enhanced with the shocking departure of skilling. It has been analyzed that the Enron, entered a $500 million profit from the equity stock derivative from the concerned party. It can be viewed that the related party is lightly capitalized with no other party at the risk except the Enron (James, 1995).According to the Watkins, the Company had supported the gain of income statement through the contribution of its shares. Watkins asked one question from the Ken lay the entity of the related party had lost 500 million in the transactions of equity derivative with the Enron, who will bear that loss, Watkins was not able to find Equity holder or Debt Holder. The Watkins assumed if it is Enron, from the Company shares, then it shows that the Company don’t have fact criteria which would seem nice to the investors & the S.E.C. At last, it can be summarized that the footnote of the related party attempts to define the transactions. The various interested Companies like journalists, equity & debt analyst, managers of the hedge fund are trying to find out the reason behind the Skilling left. Watkins heard the discussion that the Enron entered the gain of $500 million from the related party, from all undecipherable pages on contingent contribution of the Enron to the entity of the related party, and the entity of the related party was capitalized with the stock of the Enron. It can be seen that the responsibility of the Company to make sure that the statements of the finance must be complete, exact, accurate and have needed disclosures that there is somebody at the user who can authenticate this. The Company makes the footnotes & financial statements, but both should be exact and accurate. In general, the Company should be aware of what is required to make full accrual type of financial statements. It can be seen that region of the concern is Association & the management of the Company should be aware of needed disclosures and footnotes (Barth, 1991). The Audit Committee provides a checklist of footnote & disclosure which the Company can implement in each and every type of audit. If the association resides with the similar management of the Company then the Company doesn’t have odd transactions like settlements of the litigation. The starting year with the management of the Company shall take more energy & time as compared to past for to make sure that the business entities & their internal control are authenticated so that the risks are appropriately analyzed, that the auditing is planned accordingly to risks, and there are sufficient methods within the process of the audit. In general, if footnotes are adequately defined, then investors would become familiar with the entities defined in the related party footnote are capitalized, all the value of the business entity comes from the value of the underlying derivatives, stock and the Net Profit (Barth, 1991)
Q.2.) Do you think that the new accounting and auditing standards will be able to prevent material misstatements in the financial statements?
It has been analyzed that because of situations found in the audit like Enron & World Com the AICPA’s released new statements of the Auditing Standard which effect all type of audits. The experience at Enron indicated that only two kinds of changes are required in the GAAP. First change, is related to that fair value of the assets must not be mentioned in the financial statements until & unless they are based upon reliable information and prices are determined by the arm length of the market transaction (Bethany, 2001). The second change is related to the conventional accounting and definition of expense & revenue explained earlier must govern, override the rules & regulation mentioned in the interpretations & authoritative pronouncements. It has been analyzed that the Post Enron & other business debacle, the act of Sarbanes Oxley of 2002 had passed. SOX established new rules & regulations to transact with the credibility crisis & restore the confidence in the existing corporate market system. Minimization of the interest conflict persuading the executives & directors so, they can form loyalty, objectivity and independent judgment in the attention of all shareholders. After the initiation of this act, directors at Enron were sufficiently informed about the plans & strategies. This act ensures completeness, reliability and transparency of the financial reports. The act initiated the monitoring the exercise of undue influence for the audit conduct.
The Act initiated the reporting of the auditor to the audit committee. The initiation of the PCAOB would solve various issues such as first inspect & write rules governing the firms of the audit, creation of the auditing standard like independence standard & quality control and maintained the register for foreign registrants of SEC (Patricia, Hutton, & Sloan, 2000). The initiation of the act of Sarbanes Oxley of 2002 offered exact services of non audit to their users without the consent from the subcommittee of the audit like bookkeeping, design and implementation of the monetary information system, Actuarial services, functions of the Management and the human resource etc. It has been analyzed that the SEC was responsible for implementation of the new regulations and the changes for the compliance within the framework of SOX. For instance, the proposal for the various lawyers discovering misconduct, should route to the reporting for the violation. After analyzing the collapse at Enron, two changes were required, first change was related to the fair value of the assets, the assets must be recorded at the fair value only if the assets are based upon the reliable information and this would help the Company in minimizing of the material misstatements in the financial statements. The second change was related to the conventional accounting, definition of revenue & expense must be governed earlier this would help the Company in knowing all expenses that would occur in the future. The act of Sarbanes Oxley of 2002 established in the Enron, to deal with the issues of credibility crisis and store the confidence of the investors in the existing capital & money market system (Michaely, Roni & Womack,1999). This act ensures the accuracy, exactness, transparency and understanding of the financial reports. Increase the function of the audit committee, complete autonomy of helping directors, flow of the information & the capability of the auditor to make the report and indulge the audit committee in the relevant decision making. The initiation of the Oxley Act had a specific concentration on systems of the whistle blower & certification by CFO& CEO. This act increased the responsibility of the directors for ensuring the scrutiny of independence among the auditors (Easterbrook, Frank, & Daniel, 1984) .The new audit standard emphasizes the relevance of the Board &the management to adopt the accountability for the statements of the finance. It has been analyzed that the Enron brought the fact that management of the Company was not adopting the accountability for the statements of the finance & that’s why some CPA’s were concerned about getting the engagement, as compared to independent & external parties that they had been. These new types of accounting & auditing standard give the details about governing the process of the audit and documentation (Dechow, Patricia & Meulbroek, 2001)
If you want Accounting management Assignment Help study samples to help you write professional custom essay’s and essay writing help.
Receive assured help from our talented and expert writers! Did you buy assignment and assignment writing services from our experts in a very affordable price.
To get more information, please contact us or visit www.myassignmenthelp.Com
