De consultant to run a new subsidiary called

De La Salle Lipa B A T A N G A S A COMPILATION OF INDIVIDUAL REPORT Final Project for Midterm Conceptual Framework and Standards Presented to Ms. Elsa Glinda G. Altar In Partial Fulfillment Of the Requirements for the Degree Bachelor of Science in Accountancy Submitted by Danah Jillian F.

Librea S.Y. 2018 – 2019 1st Semester Table of Contents Company Name ENRON Page Company Background 1 Conceptual Framework – Qualitative Characteristics 2 3 Financial Statements 3 9 Financial Reporting Analysis 10 Application and Recommendation 10 Rubric 12 13 Company Background Enron is an energy trading company based in Nebraska which primarily provides natural gases in the United States of America. It was formed in July 1985 behind the major supervision of Ken Lay, the Chief Executive Officer and chairman of Enron who was the former CEO of Houston Natural Gas. Soon, he decided to begin and join the trading industry for gas commodities.

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Afterwards, hired Jeffrey Skilling who is an energy consultant to run a new subsidiary called Enron Finance Corp. as his co-executive and he remained as the chairman. (CG, A., 2016) After joining Enron, Skilling worked with the condition of using mark-to market accounting. Simply, this allows a company to record potential profits on certain projects immediately after contracts were signed, regardless of the actual profits that the deal would generate.

(Segal, T., 2018) Enron was not the only corporation who uses this practice of accounting for many of them believed that using it was very tempting way to commit accounting fraud especially when the market price cannot be identified objectively because there was no real market value available. Jeffrey Skilling was the one who persuaded Enron to trade natural gas, wherein buyers and sellers of natural gas would transact with Enron being the mediator and will arrange the contracts. Through his idea, he made Enron immediately rise and made the company as one of the major gas trading corporation during that time.

With a good reputation in the said industry, its national reputation created rapid expansions to domestic and international business. Under his leadership, Enron had dominated the market of natural gas and the company started to generate huge profits on its trades. With the continuous growth of revenues and earnings, Skilling was appointed as the Chief Financing Officer of Enron. Considering the stable condition of the company, Skilling recruited Andrew Fastow who said to be the brightest among his recruits and quickly rose through the ranks and soon became the Chief Financial Officer. He was in charge for overseeing the investing activities of the company. He continued to hire recruits and later established a committee whom will rank the employees performance and fire the bottom fifteen percent.

This unethical process with the nickname rank and yank was known worldwide and was done annually in Enron (Enron Fast Facts, 2018). During the 2000s, Enron was still able to deceive people that it sustains its condition even though they have encountered lots of troubles including the issue during dot com era, rise of market competitions, the collapsing of their water and business service and such. Enron was even named as the most admired corporation for being very innovative by Fortune magazine. However, an investor and a reporter questioned the irregularities of the companys financial statement. Skilling became agitated and responded to the questions explicitly by calling the investor an asshole and the reporters action as unethical. Jeffrey Skilling knowing that Enron is not in the good status anymore, before long, stepped down and departed Enron. Skillings behavior made the investors cease to engage with Enron. In 2001, Enron declared bankruptcy which made the mighty company in tatters.

Arthur Andersen ended its partnership with Enron. With Andersen gone, the Enrons accountants issue a series of restatements that erase majority of the companys profits. Acknowledging that Enron posted losses instead of profits, its stock value became weak. Sherron Watkins, the vice president, had notice that the values in their financial statements does not add up and smelled that something was going wrong. She advised and warned Ken Lay about the issue and that it could be the start of the actual collapse of Enron but Lay did not listen and ignored her. (Enron Fast Facts, 2018).

As a result, some of the analysts had become suspicious of it too but of course Enron and could not managed to cover up their real status through cooked books or the fraudulent financial statements anymore. After the criminal investigation had begun, Andrew Fastow, the Chief Financial Officer was convicted in federal court of obstruction of justice. Many of the executives of Enron were indicted on a variety of charges and were later sentenced to prison including Lay and Skilling. ( HYPERLINK https//www. Bondarenko, 2018) The scandal resulted a profound damage for thousands of people who had lost their jobs, pensions, investments etc. It was then that new regulations and legislations were designed to increase the accuracy of financial reporting. Conceptual Framework – Qualitative Characteristics Since the company used block box accounting, the external users were unable to figure out how Enron arises to have their tremendous profits and revenues. For the enhancing qualitative characteristic of the financial information, verifiability is applicable for users and decision makers in this nature of business.

Verifiability which was not but should be present in the characteristics or the financial information of Enron. It does not focus on uncovering the truthfulness of the data a company provides, but rather validating the results linked with the flow of the companys activities. Another enhancing characteristic that Enrons financial information must possess is the relevance for the users to know the predictive and confirmatory value. On the other hand, the financial information must also possess the fundamental qualitative characteristic which is the faithful representation of data. In order faithfully represent economic phenomena which the information purports to represent, annual reports must be complete, neutral, and free from material error. (Mbobo, M. E., Ekpo, N.

B., 2016) Furthermore, the it is an essential for the company to follow a cost restraint which is principle of conservatism. It requires that, in the situation of uncertainty and doubt, the business transactions should be recorded in such a manner that the profits and assets are not overstated (6 Constraints of Accounting, 2018). Enron could have avoided the alteration of financial statements (balance sheet) if the accountants applied this principle in making and reporting the financial information. Financial Statements Statement of Financial Position (Balance Sheet) Enron Corp. and Subsidiaries Consolidated Balance Sheet December 31,(In millions, except shares)20001999ASSETSCurrent AssetsCash and cash equivalents1,374288Trade receivables (net of allowance for doubtfulaccounts of 133 and 40, respectively)10,3963,030Other receivables1,874518Assets from price risk management activities12,0182,205Inventories953598Deposits2,43381Other1,333535Total current assets30,3817,255Investments and Other AssetsInvestments in and advances to unconsolidated equity affiliates5,2945,036Assets from price risk management activities8,9882,929Goodwill3,6382,799Other5,4594,681Total investments and other assets23,37915,445Property, Plant and Equipment, at costNatural gas transmission6,9166,948Electric generation and distribution4,7663,552Fiber-optic network and equipment839379Construction in progress6821,120Other2,2561,91315,45913,912Less accumulated depreciation, depletion and amortization3,7163,231Property, plant and equipment, net11,74310,681Total Assets65,50333,381 The accompanying notes are an integral part of these consolidated financial statement December 31,20001999LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable9,7772,154Liabilities from price risk management activities10,4951,836Short-term debt1,6791,001Customers deposits4,27744Other2,1781,724Total current liabilities28,4066,759Long-Term Debt8,5507,151Deferred Credits and Other LiabilitiesDeferred income taxes1,6441,894Liabilities from price risk management activities9,4232,990Other2,6921,587Total deferred credits and other liabilities13,7596,471Commitments and Contingencies (Notes 13, 14 and 15)Minority Interests2,4142,430Company-Obligated Preferred Securities of Subsidiaries9041,000Shareholders EquitySecond preferred stock, cumulative, no par value, 1,370,000 shares authorized,1,240,933 shares and 1,296,184 shares issued, respectively124130Mandatorily Convertible Junior Preferred Stock, Series B,no par value, 250,000 shares issued1,0001,000Common stock, no par value, 1,200,000,000 shares authorized,752,205,112 shares and 716,865,081 shares issued, respectively8,3486,637Retained earnings3,2262,698Accumulated other comprehensive income(1,048)(741)Common stock held in treasury, 577,066 shares and 1,337,714 shares, respectively(32)(49)Restricted stock and other(148)(105)Total shareholders equity11,4709,570Total Liabilities and Shareholders Equity65,50333,381 Statement of Financial Performance (Income Statement) Enron Corp.

and Subsidiaries Consolidated Income Statement Year ended December 31,(In millions, except per share amounts)200019991998RevenuesNatural gas and other products50,50019,53613,276Electricity33,82315,23813,939Metals9,234–Other7,2325,3384,045Total revenues100,78940,11231,260Costs and ExpensesCost of gas, electricity, metals and other products94,51734,76126,381Operating expenses3,1843,0452,473Depreciation, depletion and amortization855870827Taxes, other than income taxes280193201Impairment of long-lived assets-441-Total costs and expenses98,83639,31029,882Operating Income1,9538021,378Other Income and DeductionsEquity in earnings of unconsolidated equity affiliates8730997Gains on sales of non-merchant assets14654156Gains on the issuance of stock by TNPC, Inc.121–Interest income21216288Other income, net(37)181(37)Income Before Interest, Minority Interests and Income Taxes2,4821,9951,582Interest and related charges, net838656550Dividends on company-obligated preferred securities of subsidiaries777677Minority interests15413577Income tax expense434104175Net income before cumulative effect of accounting changes9791,024703Cumulative effect of accounting changes, net of tax-(131)-Net Income979893703Preferred stock dividends836617Earnings on Common Stock896827686Earnings Per Share of Common StockBasicBefore cumulative effect of accounting changes1.221.361.07Cumulative effect of accounting changes-(0.

19)-Basic earnings per share1.221.171.07DilutedBefore cumulative effect of accounting changes1.121.

271.01Cumulative effect of accounting changes-(0.17)-Diluted earnings per share1.

121.101.01Average Number of Common Shares Used in ComputationBasic736705642Diluted814769695 Statement of Cash Flow Enron Corp. and Subsidiaries Consolidated Statement of Cash Flows Year ended December 31,(In millions)200019991998Cash Flows From Operating ActivitiesReconciliation of net income to net cash provided by operating activitiesNet income979893703Cumulative effect of accounting changes-131-Depreciation, depletion and amortization855870827Impairment of long-lived assets (including equity investments)326441-Deferred income taxes2072187Gains on sales of non-merchant assets(146)(541)(82)Changes in components of working capital1,769(1,000)(233)Net assets from price risk management activities(763)(395)350Merchant assets and investmentsRealized gains on sales(104)(756)(628)Proceeds from sales1,8382,2171,434Additions and unrealized gains(1,295)(827)(721)Other operating activities1,113174(97)Net Cash Provided by Operating Activities4,7791,2281,640Cash Flows From Investing ActivitiesCapital expenditures(2,381)(2,363)(1,905)Equity investments(933)(722)(1,659)Proceeds from sales of non-merchant assets494294239Acquisition of subsidiary stock(485)-(180)Business acquisitions, net of cash acquired (see Note 2)(777)(311)(104)Other investing activities(182)(405)(356)Net Cash Used in Investing Activities(4,264)(3,507)(3,965)Cash Flows From Financing ActivitiesIssuance of long-term debt3,9941,7761,903Repayment of long-term debt(2,337)(1,837)(870)Net increase (decrease) in short-term borrowings(1,595)1,565(158)Net issuance (redemption) of company-obligatedpreferred securities of subsidiaries(96)-8Issuance of common stock307852867Issuance of subsidiary equity500568828Dividends paid(523)(467)(414)Net disposition of treasury stock32713913Other financing activities(6)(140)89Net Cash Provided by Financing Activities5712,4562,266Increase (Decrease) in Cash and Cash Equivalents1,086177(59)Cash and Cash Equivalents, Beginning of Year288111170Cash and Cash Equivalents, End of Year1,374288111Changes in Components of Working CapitalReceivables(8,203)(662)(1,055)Inventories1,336(133)(372)Payables7,167(246)433Other1,46941761Total1,769(1,000)(233) Financial Reporting Analysis The company used the mark-to-market accounting which refers to accounting for the HYPERLINK https// o Fair value fair value of an asset or liability based on the current HYPERLINK https//en.wikipedia.

org/wiki/Market_price o Market price market price. During 1990s, mark-to-market accounting has been part of Generally Accepted Accounting Principles and was considered as the gold standard in some circles as this accounting changes the values on the balance sheet as the market conditions change. The company took advantage of accounting limitation by managing its earnings and balance sheet to show that it was in satisfactory performance.

It was obvious that Enron did not want the external users to grasp the movement of how Enron really generate a pleasing amount of money (Segal, T., 2018). Thus, they, Enron and by the backing of the accountants, deceived lots of people by reporting fabricated financial information. This was the reason why Sarbanes-Oxley Act was passed. In response to the accounting scandals that occurred, this act aims publicly held corporations, their internal financial controls, and their financial reporting audit procedures as performed by external auditing firms.

(Peavler, R., 2018) Application and Recommendation By watching this very informative film titled Enron Smartest Guys in the Room, it helped me realize how accountants work greatly affects the business and how important their roles are in a business. The accountants duty is to report the financial information of the business in a fair and square manner.

The Enron scandal made a lot of people, understand that no matter how bright and smart a person is but he is full of corporate greed and do not know how to work efficiently and effectively at the same time, he will never achieve a holistic success. The flaws of Enron could have been diagnosed earlier if only the executives managed properly all the companys operations. Accountants, however, are undeniably involved in the crime for they were not practicing their duties with an ethical sense. The accounting concepts are made to for the accountants to use it as guideline in preparing and reporting financial statements. Fraud will not happen if not for the incompetence of document preparers. This accounting scandal was very mind-opening for a lot of people hence, served a lesson for everyone in advancing to a new wave of concepts and frameworks the lies beneath the accounting practice.

References 6 Constraints of Accounting. (2018, September 24). Retrieved October 17, 2018, from HYPERLINK https// https// Bondarenko, P. (2018, January 31). Enron scandal.

Retrieved October 17, 2018, from HYPERLINK https// https// CG, A. (2016, February 29).

Enron Case study. Retrieved October 17, 2018, from HYPERLINK https// https//www.applied-corporate-governance.

com/case-study/enron-case-study/ Enron Fast Facts. (2018, April 23). Retrieved October 17, 2018, from HYPERLINK https// https//

html Mbobo, M. E., Ekpo, N. B.

(2016). Operationalising the Qualitative Characteristics of Financial Reporting. Retrieved 2018, from HYPERLINK http//article.

03.html http//

20160504.03.html OLeary, C. (2002, December 31).

EnronWhat Happened Retrieved October 17, 2018, from HYPERLINK https// https//www.britannica.

com/topic/Enron-What-Happened-1517868 Peavler, R. (2018, August 16). Enron, Corporate Fraud, and SOX. Retrieved October 17, 2018, from https// Segal, T. (2018, September 26).

Enron Scandal The Fall of a Wall Street Darling. Retrieved October 17, 2018, from HYPERLINK https//www.investopedia.

com/updates/enron-scandal-summary/ https// Rubrics for Grading Case Study Film Review Student NameLIBREA, DANAH JILLIAN F.

Year and SectionA1BDate of SubmissionOctober 21, 2018Case Study Number No. 1Case Study TitleSourceNumber of Pages13Essential Review Elements Mechanical Elements Checklists Complete citation of title, author, source, dateLength of report acceptable. Minimum of two and maximum of five pages.

Presentation is both uniform and professional. Use short bond paper. Use Arial Font Size 11Mechanics of transcription are of graduate quality (spelling, punctuation, etc.)Review ContentConcise summary of content (what are the authors main points/ problems)Reaction to content (Do you agree/ disagree Why)Application of article (How will you use the information youve learned in CONFRAS) Maximum Score 10021-2521-2521-2521-25Title, author and source are stated. All mechanical elements (length, format, spelling, etc.) are acceptable.

Title, author and source are not well stated. Some mechanical elements have minor errors or are not completed properly.Title, author and source are incomplete. Numerous errors or deficiencies in mechanical elements.Title, author and source are not stated at all. There are serious deficiencies in mechanical elements.Summary shows that you clearly grasp the essence of the managers position.

Summary shows that you grasp some of the managers main points.Summary is somewhat vague or unfocused.Summary is too short, vague, misrepresented or missing.Reaction explores content with clear Analysis.Reaction explores content with some critical analysis.Reaction merely restates the authors ideas and words.Reaction indicates Article was not read With care.Application shows interpretation and extension of MAS learning to classroom/ everyday life experience.Application shows partial interpretation and extension of MAS learning to classroom/ everyday life experience.Application shows partial interpretation or extension of MAS learning to classroom/ everyday life experience.Application shows little interpretation and/or extension of MAS learning to classroom/ everyday life experience.Total Score PAGE MERGEFORMAT 2 p8Dz CHI,_fo)–vqNi7YZPYcP.MaaBgCPv, yyC8Ale6qyvbN6Gv7cqcddNA/ ox @ hgHcEa7ABHm8XhJ/QVIxBKY4 nPPxX)/ EPp8XeKg6M Ox..wXkMnAIrB9 O(tVH1UH/AP9 dP.r-MZ4EkubzKfde/3KfpHz6SBCyd3lbS gjT CqVS54hlRBguiV31TH9Ue3Y8d0p(Kgh9y MV2w1sulP1.)JBumDRfQxWjHuUfZzywSMIKs4.Kkkra_.ambkoye3j/uk-uy_X7VwzER5 GmDl0WV.ksuiER.PP9HK)_jx.f3M3cOVkE,jghBI,pVo_foeeAsMu -lHnekxl,9)vsmJ([email protected] CpUUuW5Bf)FiBm8UI4GTeeQSJXqYrM/RJFRWvx1ikGWKM ),GU6nhw(cOhP,m-v-p JXrS7 dHiJStycYL/9F/w [email protected],Jrx.nO),p.yZ4,dpLjDORV_32YwUU7FN 0yuj3X/KHQAdbNs29I3o6)pR_wlBdtmURRFcm nwGQNrBaMAS UbG)t3r)HpSnfud2qimYVX)_M5( (R1v2tMWcLZyvm [email protected](pPlZJBf3sD(e4mkWOkk1tPl4B4 BpiWMvQhUDdzBYnwl4),l-1AEPfYT76w5r5_ dmnk288gsD_9 [email protected] [email protected]_A2 Mpc6ZKNUC7nUi ixRaoPBKX )RSKphUA.W_-.zY/8(N1GfMsK4JzbbO.tU2M70 .X3- [email protected],dj.MJCEk PrhHn5g7qooS45sWxmFILkmIakMWtRBW2m24BCN1QgRH..WoiuP vR7Ymm-ELeZSEHp2 ZrP- yKcB2dpMvtI4YfT 2T/jmDGi-U6LcW)R2SSzaJG2.tLN(dzrEs(y iNR 1xslaF2b1 [email protected] tlC/[email protected]@rXGBbPF i qXJacVy,pUWocgXUn3ibfP6U_d0dwMMLLE).F9PCq,mozhGM 2LtG,btUt56j.BcE0sdr75)[email protected])zVhutqgKHM4RZKGpMOQgc,2g w_YYWBjIH,F)[email protected]@Rz N.phqO-xiQMy.L [email protected]/2WG4xqAM ePvf)ShT([email protected] yJA5oB1(g4 Vej8MpVFmTK6EG_Sk..,2E-XUB2fAH/T_gR ztWXjSB8HZJ Q uTl [email protected]@EFf9JnKn RiTu_k/.- r) Ks 02 [email protected](oRg Ar/5LoQe4sM7j vBxT(d 1NC8Iosx )[email protected] yNIG6_gxH8o/TYZeiyLZS-HMWq/[email protected]/[email protected]/zEe/ _xVmm h)6byVusOFz_g /.ADJHR) / Wy FR-pj(.9PJT,CKq2Yhb,@ot,LalJ1sCdFoPw))ySWAkD9/bby(7rc9 [email protected]_Eknn9guHtDnJ/myaPgxlit)4ur9sN5zNmMJt mHxmT3bjSMTTx VD4WJg6wJtET),h( 3BVc/G7RJ.uGM6NqHHy([email protected] KOlcTH7p80qj(nmh_uA98usnf47PEt-tQWKScYkay9)MIyi.gpe7HcG-zS0iC,3QaPkV u2d5,SgZp1o_wYgO27_qG 8UV 8oiW7v-Ofl-lpDZm zp(WwxO1bOVLUUBZuWZm1o5)N/KyY(m2.LDGrJR0mDV6fJY-UQVhcX8 o//[email protected])EvaR/r97uXiwT3NbM2f6f(S2c6K0qIISDMGl) 1/zKt [email protected] A BU/.IMjAwqI_fAbQZZZWWW_wxvxW 2Pv.Tvg(WmQ6 O 648pPzXXXBwn9f_dgAOgO47MzqfC.TP([email protected] pM AykWP/pDHvuGwL19KUF nF-tIomLmAPZQE,y7-ST pds)@wD/ T,JUT4Ton-uu(Vj ymK7CGsfzTzM_0rlL/R.u_N(/Pvt_(M_T GnQeFaLcFpFvaV8cuMfdM1oPthGRIA)[email protected] XeyaIfdacis1cGCpn3.zVuiUhemoZg)[email protected]/ow )d2iT1Jc(UicTgW.fmOR7lcbhp TgnAK5DcTdNNWGD/8GoJDMNbwkeGUJWWD2Iwop95EwCh.B6mv7J ) TevMkbMCb(TyfSsb9sA7tf9Rei8P-Co1hU2.dkJk-EtaYkdjyCjC_9yNHgTN/[email protected] h4M,[email protected]/zS,vy0aTXY)QZ4FU98TiF [email protected]_odkP- M/_JlD(tHmpEZCETj84YRMiG1K- lnwkqNUnbdhK [email protected] PLlx6Tlk5iKFfLX6-2lRm4e0Yc5fypj5YGUB_GPun FMtOu/[email protected]/O4s6 AD Y, B8L 1(IzZYrH9pd4n(KgVB,lDAeX)Ly5otebW3gpj/gQjZTae9i5j5fE514g7vnO( ,[email protected] /[email protected] 6Q


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