The Regulation of Financial Reporting Case Study

The Regulation of Financial Reporting - Case Study Example These restatements reduced previously reported net income as follows: 1997, $28 million (27% of previously reported $105 million); 1998, $133 million (19% of previously reported $703 million); 1999, $248 million (28% of previously reported $893 million); and 2000, $99 million (10% of previously reported $979 million). 1 On December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. With assets of $63.4 billion, it is the largest US corporate bankruptcy.2The Enron Scandal was the most controversial time for the American Financial Markets as the tax-deferred 401(k) retirement plans of the Enron employees were reduced to nothing. The reason Enron's bankruptcy concerns the field of accounting greatly is that its prominent ,long-time auditor, Arthur Andersen, was charged with a large dereliction of duty and even fraud by the press and members of the US Congress and is still facing countless lawsuits. The current position in the Aftermath of this fiasco is that the Securities and Exchange Commission has called for the creation of a new oversight body to regulate and discipline published financial reporting.The SEC, the Financial Accounting Standards Board (FASB), and the American Institute of CPAs ( AICPA) are all under constant fire for not having clarified and properly implemented the GAAP rules relating to special-purpose entities which were the sham vehicles of Enron's shoddy accounting financial statements. 3 The following table shows some of the accounting statements/figures for Enron 4 This table shows some of the information that was used to mislead the public about the health and wealth of this promising company. Enron became a household name during its zenith, due to its promising financial records. This table shows the data from Enron Corps Annual Reports with its very promising figures concerning the records of its unconsolidated affiliates. _ SUMMARY OF THE EVENTS LEADING TO THE ENRON DISASTER 1996 The use of unconsolidated SPE's allowing the Senior execs to take money from the Enron accounts without the fact showing on the published financial statements- Senior Executives draw large remunerations for themselves ,and an era of shoddy accounting begins with risky ventures and sunk investments paving the way to financial disaster. 1997 Creation of Chewco to hide debt and inflate profits .. 1998 Financial disasters of capital intensive ventures (including a water distribution scheme and power plants in Brazil.) 1999 Permission by the Enron board of directors to waive conflict of interest rules thus allowing Andrew Fastow to run private companies that do business with Enron. The creation of LJM a sham company which is shown on the records to be buying poorly performing Enron assets. Thus a complex and questionable accounting practices saga begins that will lead to the downfall of Enron's 2000 Filing of fraudulent files for the 10-K , 1999 and forged correspondence on accounting matters.There is a large scale sale of Enron shares and more fraudulent filing of accounts for the third quarter of 2000 2001 This was a crucial year for Enron as its Ceo's committed further security fraud by omitting the company's poor financial and the Enron executives got bonus checks for millions of dollars.Ironically at this time Enron was named