Although there are differences between the Chinese Accounting Standards for Business Enterprises and the International Accounting Standards, some basic accounting principles should be the same. Here only introduces the financial report prepared by the Chinese Accounting Standards for Business Enterprises.
First, Mark-to-market, also known as fair value valuation
The documentary criticized the market value accounting standards. The method of accounting is very subjective, which facilitates the manipulation of corporate profits and is a turning point for Enron's collapse.
In fact, there is nothing wrong with the market value principle itself. Market prices are constantly changing. Enron's financial department should adjust asset prices in accordance with the principle of prudence and include changes in investment income.
Second, Enron did not disclose details of related party transactions
The finance department set up the LJM shell company, so that Enron's huge debt can be transferred to LJM. Inflated assets and income.
If one party can exert significant influence on the other party, it constitutes a related party. Enterprises should disclose all related party relationships and relevant information about their transactions in their financial statements.
This content will appear in the chapter of financial reports, important matters or related party transactions.
Third, sell three oil tankers to Merrill Lynch
Strange transactions discovered by the regulatory authorities. If the oil tanker is sold, Enron’s bank deposits will increase and its income will also increase, and the current profits can be inflated while the expenditure remains unchanged.
There is this formula on the corporate income statement: income-expenditure = profit. Therefore, as long as income increases, profits can increase. If the data is good, the stock price can rise.
Finally, the cross-checking relationship of the three major financial statements
Enron’s ex-vice president said: “When I checked it with the electronic form, the numbers didn’t match up at all. I really can’t believe that Arthur Andersen dare to visa financial statements.”
1. Arthur Andersen has lost its independence in this incident. It has not audited Enron's false profit report, nor has it discovered its huge debt. In 2002, it closed down because of the Enron incident.
We know that a financial report audited by an accounting firm means that it is prepared in accordance with the Accounting Standards for Business Enterprises in all major aspects. Fairness reflects the financial status, operating results and cash flow of an enterprise in a certain year.
2. If the numbers are not right, then it is wrong.
Modern accounting adopts the double-entry bookkeeping method of debit and credit, and the accounting equation is used as the bookkeeping principle. The specific rule is "If there is a loan, there must be a loan, and the loan must be equal."
Total assets = total liabilities and owner's equity
In the last line of the balance sheet, the total assets of a year must be equal to the total of liabilities and owner’s equity
Revenue-Expense = Profit
The formula in the income statement is:
Operating income-operating costs-taxes and surcharges-sales expenses-administrative expenses-R & D expenses-financial expenses + (- investment income) + (- income from changes in fair value) + (- asset impairment loss) + (- asset disposal income) = Operating profit
Operating profit + non-operating income-non-operating expenses = total profit
Total profit-income tax expense = net profit
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