Overestimated Value of Company Assets and Income, Case of Eron (Essay Sample)

ENGAGEMENT ASSIGNMENT SUMMARY
WEEK 3
ASSET MEASUREMENTS
ISSUES ASSESSED: MEASUREMENT APPROACH ERRORS WOULD LEAD TO OVERESTIMATED VALUE OF COMPANY ASSETS AND INCOME, CASE OF ENRON
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In the recent past, there has been raising cases of firms making use of valuation methods, especially in reporting their incomes and assets that result to overestimation, and misleading disclosures (McLean and Elkind, 2013). The reported financial information does not conform to near fair value and use requirement. Measurement and the methods used has been recognised as one critical issue in reporting of financial data as it influences the figures reported. Consequently, decision taken by investors. It is in the requirement of GAAP, that firms should disclose the fair value of their incomes and assets. This is to ensure adequate disclosure. However, management are at discretion to use any method they deem fit. This leads to some firms reporting inappropriate figures, and making use of measurement methods that would lead to misleading figures (McLean and Elkind, 2013).
One example is the case of Enron inc. which was an American base corporation. It was based in Texas and was well known for energy trading and utility. The management would make use of accounting practices such as market to market to inflate the company revenues (Segal, 2019). This led to the rise of the firm making it among the biggest corporations in US. In 2001 it was realised that the company was rising suspiciously, and most people did not even know how the company made its money. Only until 2016, that the firm was realised to be overpricing its incomes as well as its assets. The executive would overprice its revenues and make payments to creditors at high rates, which resulted to overall losses. Also, resulted to over payment of shareholders inform of dividends. Besides, the firm would write-off assets that were not performing without making disclosure to state the value so that it would not impact on the firm states. Besides, the management would make use of market to market method in measurement of their incomes and assets which led to over valuation. In their books, they were not able to report a fair value of their income and assets. Consequently, leading to heavy losses due to the company. The firm was accused of misleading its investors who lost a lot of money after