Financial Statement Fraud.Enron.AICPA

G gas help pipeline in central asia pipeline

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Unformatted text preview: unds such as Long-Term Capital Management—that employed “rocket Scientists” and Nobel laureates to design sophisticated computer models, Enron’s statement that it would “refine” its own models should have raised concerns “refine” © 2003, 2005 by the AICPA Special Purpose Entities (SPEs) (Enron’s principal method of financial statement fraud involved the use of SPEs) (Enron’s Originally had a good business purpose Help finance large international projects (e.g. gas Help pipeline in Central Asia) pipeline Investors wanted risk and reward exposure limited to the Investors pipeline, not overall risks and rewards of the associated company company Pipeline to be self-supported, independent entity with no Pipeline fear company would take over fear SPE limited by its charter to those permitted activities SPE only only Really a joint venture between sponsoring company and Really a group of outside investors group Cash flows from the SPE operations are used to pay Cash investors investors © 2003, 2005 by the AICPA Enron’s Use of Special Purpose Entities (SPEs) Entities To hide bad investments and poor-performing assets To (Rhythms NetConnections). Declines in value of assets would not be recognized by Enron (Mark to Market). would Earnings management—Blockbuster Video deal--$111 Earnings million gain (Bravehart, LJM1 and Chewco) million Quick execution of related-party transactions at desired Quick prices. (LJM1 and LJM2) prices. To report over $1 bill...
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This document was uploaded on 03/29/2014.

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