The Enron Corporation Scandal

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IDENTIFY THE ACCOUNTING PRACTICES THAT WERE ASSOCIATED WITH THE ACCOUNTING SCANDAL. The Enron Corporation failures made world headlines for many reasons ranging from greed from its executives, the alleged malpractice and criminal behaviours, and its quick and disastrous collapse. The most critical factor in Enron’s melt down was the use of creative and manipulative accounting practices to distort reported profitability and indebtedness that befell the corporation (A. Holt and T. Eccles, 2002) The accounting practices involved in this case are the revenue recognition criteria adopted by Enron Corporation, Market to Market strategies, the use of Special Purpose Entities, booking to cost as assets and the corporate governance practices. Revenue Recognition Mark-to-market and Merchant Model Revenue is the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an entity (such as sales of goods, sales of services, interest, royalties, and dividends). [IAS 18.7]. Revenue recognition, as defined in the IASB Framework, means incorporating an item that meets the definition of revenue in the income statement when it is probable that any future economic benefit associated with the item of revenue will flow to the entity, and the amount of revenue can be measured with reliability. Enron used revenues as its primary financial objective, performance driver and a measure of success. The employment of this hyper-inflated
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