Accounting

Enron was one of the world’s largest power companies before it went bankrupt in one of the most spectacular financial

frauds in history. One aspect of the fraud involved the creation of a separate entity that borrowed a large amount of

money and then used the money to acquire facilities, which were then leased and used by Enron. Because Enron owned less

than 50 percent of the stock of the separate entity, Enron was not required to include the entity in its consolidated

financial statements. This arrangement was attractive to Enron management because the company did not have to report the

huge debt held by the entity on its consolidated balance sheet.
The arrangement was deceptive to shareholders and potential investors because they were unaware of this debt, which

turned out to be the responsibility of Enron. Recently, the FASB issued standard requiring companies to include such

separate entities in their consolidated financial statements.
Required:
Describe the economic entity assumption, and provide reasons why the Financial Accounting Standards Board (FASB) is

requiring the consolidation of such entities. Do you think that the separate entity should have been considered part of

the economic entity called Enron? Why?

Place this order with us and get 18% discount now! to earn your discount enter this code: special18 If you need assistance chat with us now by clicking the live chat button.