The Revenue Recognition Principle Of Enron

Bernie Madoff is attributable for having one of the biggest frauds in history; he was responsible for losing billions of dollars of investors’ money for over twenty years. Known as one of the fathers of the NASDAQ, he gained credibility early and was able to prey on different affluent groups to gain billions of dollars for ‘trading’ investments. Markopolos the whistleblower of the Madoff case saw this scheme from the beginning and attempted to warn the SEC, which proved to be unsuccessful.

These estimations were based on the future net value of the cash flow; costs related to the contract were often hard to figure out. This means that the estimated incomes from projects were included in all of Enron 's accounting even though the money was not received and if there were any it would show up in future periods. Investors were given misleading information because of the deviation in the estimations. Enron was the first non-financial company to use the mark-to-market method. The U.S. Securities and Exchange Commission gave Enron their approval to use the method on January 30, 1992. Enron 's purposed the entities were going to be used to dodge the traditional accounting conventions but also so they could hide debts. The entities made it possible for Enron to mislead, hide its

Lay and Skilling placed a heavy emphasis on “strong earnings performance” and on increasing Enron’s stature in the business world.

In review of the Enron case, executives higher up exploited their privileges and power, participated in unreliable treatment of external and internal communities. These executives placed their own agendas over the employees and public, and neglected to accept responsibility for ethical downfalls or use appropriate management. As a result, employees followed their unethical behavior (Johnson, 2015). Leaders have great influence in an organization, but policies will not be effective if they do not abide by the policies established. “ Enron: The Smartest Guys in the Room” demonstrates how the nature of people do not change, whether it’s terminating employees as way to handle issues, or ongoing fascinations for profitable advances. Enron’s collapse produced a culture that prioritized profitable gains.

What began as a simple oil company turned into a public energy trading monster, known as

White collar or corporate crimes have not been new in the history of criminology. However, there have been certain cases that have changed the way corporate crimes are defined and create an impact on the overall society. One such case was related to the collapse of the Enron. This infamous case has redefined the white-collar crimes and corporate involvement in criminal activities. According to the theoretical definition of white collar crime by Sutherland (1945), the Enron fraudulent case and its collapse are a classical example of white collar and corporate crime because it involved highly respectable and professional individuals for committing the crime very intelligently.

Revenue recognition is a significant issue in accounting because of integrity and fairness in the financial statements that are depended upon by investors, creditors, and other financial statement users. When revenue is not properly recognized in financial statements, material misstatements can occur, which misleads users. Even though the matching principle is not the same as revenue recognition, it is related in the sense of matching expenses spent to revenues earned from the expenses, or revenues to expenses that generated the revenues.

Enron was a corporation that reached heights unknown, only to watch it fall apart from the inside out based on a foundation of falsehoods and cheating. Enron established a business culture that flourished on competition and was perceived in society as an arrogant corporation, mainly because of its corporate leadership. The fairytale of Enron actually ended as a nightmare with it destroyed by one of America’s largest bankruptcies in history. The demise of Enron impacted the livelihood and futures of numerous employees, their pensions, and in due course impacted Wall Street in a significant way. Even people today are amazed at how such a powerful company met its demise so rapidly. Enron’s end was a product of greed when certain executives of Enron were not eager to accept the failure of their company. The company utilized mark-to-market accounting that detailed the projected impending profits from a long-term deal (Lawry, 2015, p. 28) The results of the deals did not generate revenue as anticipated, but tremendous loss instead. This resulted in Enron accumulating enormous amounts of debt that they attempted to keep classified from the public. Ultimately the truth came to fruition.

Question 1 Summarize 1 one page how you would explain Enron’s ethical meltdown: Enron was an energy company founded by Kenneth Lay in 1985 through a merger of vast networks of natural gas lines. Enron specialized in wholesale, natural gas, and electricity, and made its money as a wholesaler between suppliers and customers rather than actually owning any. Enron in fact didn’t own any assets, which made their accounting procedures very unusual. The lack of accounting transparency at Enron allowed the company’s managers to make Enron’s financial performance better than it actually was. The organizational culture at Enron was to blame for it’s ethical meltdown. Enron’s accounting scheme slowly began to erode its ethical practices, which soon led the culture of Enron to become a more aggressive and misleading business practice. Enron reported profits from joint partnerships that were not yet attained in order to keep stock prices up (or make wall street happy). As this was happening employees began to notice the ethics in senior management (leadership) deteriorating, and soon after they to would follow in their footsteps. Senior management thought they were saving their company from financial ruin and though lying was ok if it meant saving the company. Investors would surely sell their stocks if they really knew the situation the

Enron is known worldwide for being responsible for one of the largest corporate scandals in U.S History (History.com Staff). This once well-respected corporation rose as high as number seven on Fortune magazine’s list of the top 500 U.S. companies and employed over 21,000 people (History.com Staff). However, after failed attempts of hiding their large-scale corporate fraud, corruption, and scandalous activites, the corporation was forced to file for bankruptcy which ultimately led to the collapse of the entire corporation (Wall Street Club).

success and so took a risk into a market that had not yet fully taken

Enron Corp. was an American organization based in Houston which had its interest in Natural Gas, Electricity, Communications, Pulp and Paper. It was formed after the federal deregulation of natural gas pipelines, by merging Houston Natural Gas company and InterNorth by Kenneth Lay in 1985. This company grew at a very fast pace, from a pipe line company in the 1980’s to become the world’s largest energy trader. Enron was named ‘America’s Most Innovative Company’ by Fortune for six consecutive years. Before it filed for bankruptcy on Dec 2, 2001, Enron was considered a very big player in the market, which claimed revenues of $111 billion during 2000.

To invest your whole savings in a company through stock is an important risk almost everyone will do in their lifetime. When investing in a company you see their financial records and can see if the company’s stock value will go up if you invest in them making your money increase as well. What if this company falsifies their records and in a couple of days the company and its stock value go from $90 per share to just a penny per share. You lose your money just because a company cheated and stole your money.

The Collapse of Enron Corporation and how the three major violations under the Generally Accepted Accounting Principles (GAAP) introduce the fall of the Enron Corporation due to the off-balance sheet arrangements, the role of mark to market and lastly, the manipulation of derivatives. When the United States Congress passed the Foreign Corrupt Practices Act (FCPA) on 1977, to not just prevent but to motorize financial irregularities in the market, and many violations in the accounting system. Enron was the most famous Corporation in American history to collapse. A major corporation created by acquisition and merge with two natural gas companies. The first violation under the Generally Accepted Accounting Principles (GAAP) was the creation of the off-balance sheet method. The off balance-sheet method served as a purpose in Enron’s accounting scandal. The purpose of the scandal was to maximize financial flexibility, minimizing the cost of borrowing from creditors,

Most of the world has heard of Enron, the American, mega-energy company that “cooked their books” ( ) and cost their investors billions of dollars in lost earnings and retirement funds. While much of the controversy surrounding the Enron scandal focused on the losses of investors, unethical practices of executives and questionable accounting tactics, there were many others within close proximity to the turmoil. It begs the question- who was really at fault and what has been done to prevent it from happening again?