1042 Words Oct 31st, 2014 5 Pages
1) What important internal controls were ignored when LJM1 was created? LJM1 ignored some of Enron’s entries in the books that were missing. Outsiders owned less than 3% of the Special Purpose Entities equities. There was an error made by Arthur Andersen to let LJM’s financial statement to remain unconsolidated. If the financial statements had been consolidated, some of the errors could have been found. They may have even had some time to correct these errors before that had gotten so far out of control. There was not governing controls in place and fraudulent activities were unlimited. Andrew Fastow created LJM1 to handle investments with Rhythms NetConnections, high-speed Internet service provider. The stock that they bought at $10 …show more content…
c) Poor internal and management override of control. * Poor internal control exists when there is no proper segregation of duties. For example, same person had custody of an assets is the same person who is recorded it. Usually management override controls with the intention misstate the nature and timing of revenue or other transaction. Example altering records and terms related to significant. d) Deceiving parties outside the company include investors, creditors and regulators. * For example, SME or even big companies in order for them to maintain their performance in financing reporting is to get more people to invest. It possible they would manipulate by deceiving their financial reporting to impress more investor to invest.

4. Yes, lack of clarity in Enron financial reporting is a red flag that could be the possibility of fraud. Especially when the red flag is about Enron's pricey or increase of stock. Many of the owners of the stock are not confident with Enron because of the unclear financial report and their inconsistency. Some of them said that Enron is an earning at risk story. In 1990 around 80% of its revenues came from the regulated gas-pipeline business. But Enron has been steadily selling off its old-economy iron and steel assets and

More about Enron