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Lessons from Enron for British Business - Essay Example

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Lessons from Enron for British Business

Another accounting gap, which was discovered from the Enron's balance sheet, was the recording of the note receivable as an asset. These were the promises to pay the equity claim in the limited partnerships, which Enron recorded as assets even though GAAP requires subscribed equity to be reported as a contra-stockholders' equity account, rather than as a note receivable. Once it was accused of GAAP violations, Enron announced it would restate the previous 4 As years of financial statements by recording a $1.2 billion reduction in stockholders' equity, adjusting its income statements and balance sheets for the unconsolidated SPEs, and making prior-period proposed audit adjustments and reclassifications that had originally been considered as immaterial. Enron's restatement reduced previously reported net income by $569 million and reduced shareholders' equity by $1.2 billion.
Shortly after these announcements, several rating agencies lowered Enron's long-term debt to below-investment grade, and Dynegy terminated its proposed merger agreement with Enron. In December 2001, Enron filed for Chapter 11 bankruptcy protection.
Charles Mulford, co-author of The Financial Numbers Game, says, "the accounting model isn't broken, financial reporting just needs some tweaks." The Enron used the most common off balance sheet financing technique. ...
Enron's restatement reduced previously reported net income by $569 million and reduced shareholders' equity by $1.2 billion.
Shortly after these announcements, several rating agencies lowered Enron's long-term debt to below-investment grade, and Dynegy terminated its proposed merger agreement with Enron. In December 2001, Enron filed for Chapter 11 bankruptcy protection.
Off Balance Sheet Financing:
2nd aspect:
Charles Mulford, co-author of The Financial Numbers Game, says, "the accounting model isn't broken, financial reporting just needs some tweaks." The Enron used the most common off balance sheet financing technique. Enron conducted much of its business in these entities that they controlled. They transacted with themselves. That kind of self-dealing allowed them to report profits when they weren't traditionally making a profit." (Cited in Kelcher, 2002)
Definition:
Off balance sheet usually means an asset or debt or financing activity not on the company's balance sheet. It could involve a lease or a separate subsidiary or a contingent liability such as a letter of credit. (Wikipedia, 2005)
Can be explained as the different methods of acquiring capital by a company, which is not stated, on the financial statement of the company. The most commonly used methods of raising money which does not appear on the balance sheet is in the shape of the research and development partnerships, different kinds of lease, and Joint ventures etc. are the common methods used. Most of the companies obtain funds by using their product idea on intelligence and knowledge about any specific field and acquiring the capital from the partner. Since the partner who is providing ...Show more

Summary

The Enron scandal has given a new dimension to the corporate scandals in the history of United States. Due to the collapse of the Enron Corporation the notion of the off-balance financing or external funding not recognised on the issuing company's financial statements has gained much importance…
Author : davonte32
Lessons from Enron for British Business essay example
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