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Essay On The Failure Of Enron's Accounting System

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Failure of Enron’s Accounting System
The first failure of Enron is that it lacked a solid accounting information system. Instead, the firm adopted a concept called mark to market. This is where all accounting records of a company’s assets were based on the prevailing market price. The failure of this system is that it allows the accountants to record the value of the assets and liabilities at any value. This orchestrates mass cover ups and conspiracy as revenues will be based on speculation and derivatives. In the end the financial statements produced are highly in accurate and do not show the true position of a corporation. For instance, through this accounting system Enron was able to show that its revenues were growing while in fact the revenues were non-existent in the first place. A good case in point is the offshore partnerships opened by the CFO Andrew Fastow, and Enron official. The strategic offshore partnerships were used by Enron to project revenues that were reported in the company’s financial statements (Seabury, n.d). Other deals such as the blockbuster live streaming movie using bandwidth technology was used to inflate the revenues of the company by recording projected revenues from such deals. In return, financial analysts gave the company’s stock a higher rating based on projected revenues and derivatives. This explains why Enron was the golden goose for Wall Street prior to its collapse. From the above analysis it is apparent that the accounting information
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