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Unformatted text preview: ion of false income
To hide debt (Borrowed money was not put on financial
statements of Enron)
To manipulate cash flows, especially in 4th quarters
Many SPE transactions were timed (or illegally backdated) just near end of quarters so that income could be
booked just in time and in amounts needed, to meet
© 2investor by the
AICPA Accounting License to Cheat
Major issue is whether SPEs should be consolidated*—
SPEs are only valuable if unconsolidated.
1977--”Synthetic lease” rules (Off-balance sheet
financing) (Allowed even though owned more than 50%)
1984—”EITF 84-15” Grantor Trust Consolidations
(Permitted non-consolidation if owned more than 50%)
1990—”EITF 90-15” (The 3% rule) Allowed corporations
such as Enron to “not consolidate” if outsiders
contributed even 3% of the capital (the other 97% could
come from the company.) 90-15 was a license to create
imaginary profits and hide genuine losses. FAS 57
requires disclosure of these types of relationships.
3% rule was formalized with FAS 125 and FAS 140,
issued in September 2000.
*Usually by the
© 2003, 2005 entities must be consolidated if company owns 50% or more
AICPA Mark-to-Market Accounting
Accounting and reporting standards for marketable securities,
derivatives and financial contracts are found in FAS 115 and FAS
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This document was uploaded on 03/29/2014.
- Spring '14