Mr. Naveen
DEBIT CREDIT AND ENRON
Accounting has become very essential part of any business in today’s world. It helps the business keep running and makes sure that things are going towards in right direction. It controls expenses, improves plans, accountability and reporting under given regulatory framework. Accounting plays vital role in profitability of any concern. Profit is the life blood of any business, so how profit is reported on books is always key concern. Over a period of years there has been development of accounting principles for the preparation of financial statements, which is accepted worldwide with minor differences due to countrywide legislative framework.
The accounting principles are required to be followed in order to show a true and fair view of financial statements. If the accounts are not properly drawn up adhering to the accounting principles or accounts are falsified the stakeholders of that company may end up with huge losses. This is somewhat happened in Enron.
In 1990’s Enron was considered as one of the successful companies in US. It was one of leading companies operating in the energy sector. The Enron scandal came out in 2001 which revealed financial statements irregularities and number of inherited risks which were not revealed in the audit report. The company showed profits but they were actually incurring losses.
What actually went wrong and how it started, and if it could have been stopped before the situation worsens has to be analysed from different perspectives. 1. APPLICATION OF AGENCY THEORY
First issue to be addressed is the agency theory. This theory deals with relationship between company’s owners and managers and views the remuneration of an agent (managers) which is in proportion to achieved results as the only way to preserve the interests of the principal (shareholders’) (Dembinski, n.d.). In Enron senior level managers were working for
Accounting has become very essential part of any business in today’s world. It helps the business keep running and makes sure that things are going towards in right direction. It controls expenses, improves plans, accountability and reporting under given regulatory framework. Accounting plays vital role in profitability of any concern. Profit is the life blood of any business, so how profit is reported on books is always key concern. Over a period of years there has been development of accounting principles for the preparation of financial statements, which is accepted worldwide with minor differences due to countrywide legislative framework.
The accounting principles are required to be followed in order to show a true and fair view of financial statements. If the accounts are not properly drawn up adhering to the accounting principles or accounts are falsified the stakeholders of that company may end up with huge losses. This is somewhat happened in Enron.
In 1990’s Enron was considered as one of the successful companies in US. It was one of leading companies operating in the energy sector. The Enron scandal came out in 2001 which revealed financial statements irregularities and number of inherited risks which were not revealed in the audit report. The company showed profits but they were actually incurring losses.
What actually went wrong and how it started, and if it could have been stopped before the situation worsens has to be analysed from different perspectives. 1. APPLICATION OF AGENCY THEORY
First issue to be addressed is the agency theory. This theory deals with relationship between company’s owners and managers and views the remuneration of an agent (managers) which is in proportion to achieved results as the only way to preserve the interests of the principal (shareholders’) (Dembinski, n.d.). In Enron senior level managers were working for