Enron and Special Purpose Entities

Paper Summary:

The paper shows that, in recent months, the rules regarding special purpose entitles have come under great scrutiny. Special purpose entities allow firms to raise debt while at the same time making it almost impossible for investors to determine the actual amount of debt exposure. The paper shows that this was the case with Enron, which collapsed in 2001 when their fraudulent accounting practice were exposed. This paper investigates which accounting practices were violated as it relates to the SEC rules on Special Purpose Entities and full disclosure. It also discusses the ethical issues that the company made regarding the firms' accounting practices.

From the Paper:

"Not only did Enron behave unethically but the entire market failed to inform consumers. This market failure was made by the very institutions that were designed to protect investors. In this case the implications for the accounting firm that was involved proved to be insurmountable. The Andersen Accounting firm was disbanded as a result of its actions in the Enron case. Accountants must be very cognizant of the fact that there decision to be honest or dishonest about a firms' financial dealings may have a profound effect on stakeholders and the accountants themselves. "Accountants and many Wall Street Analysts ratified and legitimized the company's scenarios and statements regarding prospects."(Berenbeim)"

More papers on Enron and Special Purpose Entities:

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• Essay # 89906 : "Enron and the California Energy Crisis"

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