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Discussions

The Enron fraud was revealed to the public in October 2001 and this ended up in the bankruptcy of the organization. While analyzing the Enron accounting impropriety, it appears that the company executives exploited accounting limitations with intend to create a false view of the cash flows and to prepare a misleading balance sheet. This inflated the profits. Fair accounting practices and proper annual reporting might have prevented the Enron scandal. Effect of Accounting Impropriety Although improper or illegal accounting practices may assist a firm to gain short term financial benefits, such practices can have dreadful consequences on the company in the long term. Undoubtedly, accounting malpractices will reduce stakeholder confidence in management and hence investors would be reluctant to invest in the company. This situation may adversely affect the firm’s overall financial performance. Management professionals opine that active stakeholder engagement in business is inevitable to improve financial performance. Hence, in order to minimize the resulting impact of accounting impropriety on the business, making timely changes to the top management team and to publish proper annual reports is essential. ...
Hence, it can be stated that bookkeeping constitutes the basic part or starting point of the accounting process. As Banerjee (2010) states, the scope of bookkeeping is restricted to systematic and repetitive recording of business transactions in ledger accounts through journal. In contrast, the accounting process involves the preparation of Trial Balance, Profit & Loss A/c, Income Statement, and Balance Sheet using accepted accounting principles. While bookkeeping is only a clerical job, accounting is an analytical job (p.4). Accounting Equation Accounting equation also referred to as balance sheet equation, reflects the relationship between assets, liabilities, and owner’s equity of a business. This equation is linked to the concept that total debits equal total credits. The accounting equation can be expressed as Assets = Liabilities + Capital. As accounting equation is fundamental to the double entry bookkeeping system, it can greatly support the work of professional accountants. More precisely, this equation is the basic idea behind the preparation of balance sheet. A good understanding of this equation can assist stakeholders, particularly investors to form potential business decisions. While making business decisions, it is important to give specific focus to liabilities rather than assets. Discussion 3 SOX and Accounting Professionals The Sarbanes-Oxley Act (SOX) has been recently introduced in the United States to promote fair reporting of asset valuation. The SOX framework necessitates proper financial accounting disclosure and therefore organizations are required to produce complete information of assets, depreciation, values, and status in any accounting period (Omnix Asset Management, ...Show more

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Finance and Accounting: Discussions (Name) (University) Discussion 1 Enron Scandal Enron Corporation was the largest natural gas dealer in North America. Enron’s stock prices rose by 311% over the 1990-98 period and on the strength of this great growth rate, the Fortune’s Most Admired Company survey chose Enron as the most innovative large company…
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