November 19, 2010
AC 516 8:30-10:30
Alfie Mae Mañaul
John Vershir Lumacang
The Rise and Fall of Enron
As one of the world’s leading electricity, natural gas, communications and pulp and paper companies with claimed revenues of nearly $101 billion in the year 2000, Enron should have not ignored the importance of transparency which gives assurance. Transparency is defined as the quality or state of being understood and candid. Every investor wishes that he will be able to get better and transparent information about the financial data of the company. In fact, it is the quality of the report which helps investors in making certain investment decision. However, to keep its financial statements and company’s performance impressive in the eyes of its investors and other users, Enron had continuously reported income, cash flow up, inflated asset values and understated its liabilities.
Enron is more on in the line of environment-related course of business. Personally, it was an ineffective decision for Enron to have signed a 20-year agreement with Blockbuster Video for it to introduce on-demand entertainment to various United States cities. For sure, Blockbuster Video had the knowledge on the operation yet for Enron to have that deal is just out of its scope and simply, too risky. Although, it had recognized estimated profits of more than $110 million from the deal, still, analysts had questioned the technical viability and market demand of its service. Enron continued to recognize future profits, even though the deal resulted in a loss. They tried to cover up their own failures.
With Enron’s adoptability on the so-called “gain-on-sale” accounting method which allows the company to estimate the future profitability of a trade made today and book a profit today based on the present value of those estimated future profits, it had tempted the management to aggressively make...
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