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Enron's Collapse and Ethical Framework - Essay Example
Pages 9 (2259 words)
Running Header: Enron’s Collapse and Ethical Framework Name Module Date Mark-to-Market valuation is a way of valuing assets and liabilities at a fair market price. It is different from the tradition historical accounting as values in this method change with the market conditions…
Enron used to have a conventional accounting system where all the costs and revenues were listed down in order to arrive at the profits (Velasquez, 2005). However, when the new CFO Skilling joined the company he insisted on using the mark-to-market valuation for evaluating the value of Enron’s assets. This is where things started to go wrong for Enron. This also made Enron the very first company in such volatile business climate to use this kind of accounting system. Enron started cruising on a wrong track. They decided to value all their future contracts using the system promulgated by CFO Skilling (Benston, 2003). However, there were large discrepancies in the system as it was very difficult to assess the future costs and income streams from contracts that were to be implemented in the future. The new system required to value all investments to be written as a present value of future cash flows. This created a big problem for accountant. They decided that they cannot match the future cash flows with profits as it was humanly impossible task in a gas company. Hence, they started giving misleading information to the investors, shareholders and creditors. This was an eerie accounting policy that Enron came up with. ...
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