enroness - Economics 260 Fall 2006 Finance I In January of...

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Economics 260 Finance I Fall 2006 In January of 2006, Kenneth Lay and Jeffrey Skilling both went on trial for a 53- count, 65-page indictment that covered the extent of their financial crimes, including bank fraud, making false statements to banks and auditors, securities fraud, wire fraud, money laundering, money laundering conspiracy and insider trading. Obviously they did not single handedly demolish a once blue chip stock, but they do hold much of the blame. Nearly each one of these crimes is related to the management’s and the auditors’ abandonment of the principles of accrual accounting and capital budgeting. CFO Andrew Fastow had the wonderful idea of creating the off-shore entities used to hide the many debts of Enron and accrual accounting made this possible. The special purpose entities made deals with Enron to generate various profits and revenues for Enron while taking many of the debts and losses away from the financial statements. Enron “cooked its books” to make a company on the verge of bankruptcy look like the best company in
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This note was uploaded on 04/23/2008 for the course ECON 220 taught by Professor Decoster during the Spring '08 term at Bowdoin College.

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enroness - Economics 260 Fall 2006 Finance I In January of...

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