Describe the economic entity assumption

Assignment Help Finance Basics

Reference no: EM131411206

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 a standard requiring companies to include such separate entities in their consolidated financial statements. REQUIRED: Describe the economic entity assumption, and provide reasons why the 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?

Reference no: EM131411206

Questions Cloud

Describe the ever growing great west : Describe the ever growing Great West and detail how this area became advanced while detailing how the frontier began to break down. Use examples to strengthen your viewpoints.

What are valuation bases used by keycorp for its investments : Using terminology from the chapter, what are the valuation bases used by KeyCorp for its investments?

Which type of bias was the most problematic in that survey : Refer to the survey described in given Example, "Which Scientists Trashed the Public?" Explain which type of bias (selection bias, nonparticipation bias, or biased response) was the most problematic in that survey.

Critical of modern culture : Based on the texts by Kafka and Eliot, (writing on one or the other or both), discuss how the writers seem critical of modern culture, as they portray modern man as a self-conscious functionary who fears an acute loss of spirituality and identity

Describe the economic entity assumption : Describe the economic entity assumption, and provide reasons why the 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?

Design a hr succession plan for a health care organization : Research and design a Human Resources Succession plan for a health care organization.You need to support your work with at least 4 academic or professional peer-reviewed sources published within the past 5 years.

Find approximate confidence intervals for the proportion : Find approximate 95% confidence intervals for the proportion and the percentage of adult Americans who would have said in June 2001 that they think genetically modified food is not safe.

What is political platform : The Republican Party develops in the 1850s and by 1860 they have a President in the White House. They are a hodge-podge of other fragmented political parties that fell apart in the 1840s and early 50s. Who makes up the Republican Party and what ..

Consequences of popular sovereignty : Stephen Douglas' ideas for the Kansas-Nebraska Act of 1850 emphasized popular sovereignty as the method for deciding whether or not slavery would go into the western territories. What were the consequences of popular sovereignty in these areas?

User Account

All Pages