Worldcom Scam
Enron and its Associates Used Questionable Accounting Practices
Clearly, there have been cases where management knowingly deceived the auditors. Then there seem to be other instances where the accounting treatment envelope was pushed just a bit too far. In the case of Enron, David B. Duncan, the former Andersen partner in charge of the Enron audit who was the government's chief witness in the trial against Arthur Andersen, stood behind the decisions that resulted in the widespread use of off-balance sheet financing in the reporting of certain partnership transactions. (3) Certainly he carried out the breadth of the related accounting pronouncements to the extent allowable. Off-balance sheet financing is a technique generally used by companies entering into a joint venture whereby both invest in a project Monies borrowed to get the venture up and running appear on the newly formed entity's books. This is a strategy sanctioned by accounting pronouncements so long as proper disclosures are made.
Mr. Duncan, however, appeared to have been duped by a situation where management went above and beyond what was allowable. He testified that he had been deceived by Enron officials on at least two matters. The first of these was the company's use of what investigators have called a "side agreement" in the establishment of a partnership known as Chewco. If that agreement had been known to auditors, the accounting treatment of the partnership would have changed, according to Mr. Duncan. The result would have been a dramatic difference in the picture presented by Enron's reported financial statements. Mother situation involved a partnership called Southampton Place. A group of Enron insiders, including its former CFO, Andrew S. Fastow, used it to turn a profit of millions of dollars through an investment in a transaction involving the company. None of those executives were authorized by the company to make the investment, according to a report of the special committee of
Clearly, there have been cases where management knowingly deceived the auditors. Then there seem to be other instances where the accounting treatment envelope was pushed just a bit too far. In the case of Enron, David B. Duncan, the former Andersen partner in charge of the Enron audit who was the government's chief witness in the trial against Arthur Andersen, stood behind the decisions that resulted in the widespread use of off-balance sheet financing in the reporting of certain partnership transactions. (3) Certainly he carried out the breadth of the related accounting pronouncements to the extent allowable. Off-balance sheet financing is a technique generally used by companies entering into a joint venture whereby both invest in a project Monies borrowed to get the venture up and running appear on the newly formed entity's books. This is a strategy sanctioned by accounting pronouncements so long as proper disclosures are made.
Mr. Duncan, however, appeared to have been duped by a situation where management went above and beyond what was allowable. He testified that he had been deceived by Enron officials on at least two matters. The first of these was the company's use of what investigators have called a "side agreement" in the establishment of a partnership known as Chewco. If that agreement had been known to auditors, the accounting treatment of the partnership would have changed, according to Mr. Duncan. The result would have been a dramatic difference in the picture presented by Enron's reported financial statements. Mother situation involved a partnership called Southampton Place. A group of Enron insiders, including its former CFO, Andrew S. Fastow, used it to turn a profit of millions of dollars through an investment in a transaction involving the company. None of those executives were authorized by the company to make the investment, according to a report of the special committee of