Detecting Financial Statement Fraud The Collapse Of...

Detecting Financial Statement Fraud The dramatic collapse of Enron Corporation, following the series of disclosures of accounting improprieties, leads to questions regarding the soundness of accounting and financial reporting standards, and contributing factors to financial statement fraud. One question relates to important internal controls ignored in the creation of special purpose entities such as LJM1 by Enron. Another question relates to how Enron’s harsh Performance Review Committee might have aided company executives in committing fraud. Further, there are questions regarding how the external auditors could have missed catching the Financial Statement fraud, and the potential need for changes related to generally accepted auditing standards to improve identification of financial statement frauds. This paper attempts to answer these questions by examining the financial reporting issues that contributed to Enron s most significant accounting restatements, and some f actors that could explain why the falsifying of financial statements is occurring frequently. Finally, included is an examination of the lack of clarity in the financial reporting, and prospective regarding indictors that serve as a red flag for the financial statement fraud at Enron, and methods for auditors in detecting fraud revenue and other fraud schemes. Special Purpose Entities Issues Consolidation Rules Many of the accounting and financial reporting issues related to Enron dealt withShow MoreRelatedThe Enron Scandal Of Enron1052 Words   |  5 Pagesaccounting firms have long played a role in convincing the public the authenticity of the corporates’ financial statements. However, the public started to become skeptical about accountants’ reliability when the Enron scandal occurred. 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