Case Study Of Enron Corporation

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COLLEGE OF BUSINESS, HOSPITALITY AND TOURISM STUDIES

DEPARTMENT OF ACCOUNTING

ACC705: FORENSIC ACCOUNTING FRAUD INVESTIGATION
TRIMESTER 2
2015
Individual Research Assignment

AN ANALYSIS OF CORPORATE ACCOUNTING FRAUD

NAME ID # TUTORIAL DAY& TIME
FARANA BEGUM 2007002036 THURSDAY 7-9PM

ABSTRACT

There was a sudden and unexpected collapse of Enron Corp. it was the first in a series of major corporate accounting scandals that has shaken confidence in corporate governance and the stock market. Only one month before Enron’s bankruptcy filing in December 2001, the firm was widely regarded as one of the most innovative, fastest growing, and best managed businesses in the United States. With the swift collapse, shareholders,
including
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Mark-to-market allowed Enron to book profits when the contracts were signed even when no cash came in. So Enron could estimate his future profits and this estimate would be shown at the outside world.

Many of the indications for fraud were related to the measuring and reporting of total revenues by enron.furthermore, there were red flags related to the measuring and reporting of the profitability and cash flows of Enron.
Enron did not grew large by merging with other firms but simply by using different accounting methods for measuring and reporting of its total revenues than other firms in the industry. For its energy contracts Enron made use of the mark-to-market valuation method. The mark-to market valuation method for financial assets allows revenue to be recognized as earned at the beginning of the contract, so even before service is provided.

There are two red flags in Enron case the income grew in the period 1996-2000 in relation with the revenue growth. And financial statements were signs of poor earnings quality as indicated by several key cash flow
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