Why Did Enron Commit Financial Fraud

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According to Joseph T Wells, Chairman of the Board of the National Association of Certified Fraud Examiners, there are three primary reasons that a company commits financial fraud. "The three reasons a company would commit financial fraud is to conceal true business performances, preserve control and status, and to maintain personal wealth and income." A Houston based energy company, Enron Corporation, had a combination of all three. The practices under scrutiny were partnerships which investigators say were used to conceal debt and unprofitable investments (Cohan, 2011). This research paper will discuss what occupational fraud is, inform how Enron was involved, and discuss how technology could have been used to help prevent it.
Financial Statement
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In October 2001, 20,000 workers lost their jobs and over a million investors lost their nest eggs when the energy trading company Enron declared bankruptcy after years of using false accounting measures to cover up billions of dollars in debt (Black, 2013). Enron Corporation committed financial statement fraud, which was brought to light in 2001 by whistleblower, Sherron Watkins. Enron used the deliberate misstatement or omission of amounts or disclosures located in the financial statements. Their sole purpose was to deceive financial statement users. This affected particularly investors and creditors who had no idea of Enron 's financial standing. Financial statement fraud may involve falsification, alteration, manipulation of records, intended omissions, and deliberate misapplication of accounting principles (Wells, 2014). The CEO and president believed that what they were doing was for the benefit of the shareholders, but in reality, they were only harming everyone. Enron developed and opened a plant in India and there was absolutely no profits. However, checks were cut to pay bonuses for doing so …show more content…
To complete this task, the auditor would select a random sample of 20 accounts receivable with values exceeding $100,000 dollars for confirmation. After the auditor received the results, he or she would then follow the trail to determine why these amounts may be fraudulent or overstated. After the auditor determines that fraud may exist, he or she can then begin the process of determining what is causing the misstatement. A misstatement could be an error that is either intentional or unintentional. These errors will be found in the financial statement account balance or a single transaction. Magnitude of an omission or misstatement of accounting information that, in view of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement (Johnstone, 2015.)

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