One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms,while giving a promise to buy back those assets at a later date.The incoming cash was recorded as revenue,but the promise to buy back the assets was not disclosed.Which of the following is one of the ways that such a transaction is deceptive?
A)The assets should have been listed on the balance sheet as long-term assets.
B)Cash raised by selling assets should not be recorded as revenue.
C)The cash raised should have been recorded as short-term loans.
D)The off balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&A)or notes to the financial statement.
E)The promise to buy back the assets should have been listed under accounts payable.

Question

Quizplus · Accepted Answer

The off balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&A) or notes to the financial statement. This is because the promise to buy back the assets affects the financial statements and therefore should be disclosed to provide a complete and accurate picture of the company's financial health. Failing to disclose such information could mislead investors and other stakeholders. Choices A, B, C, and E do not address the deceptive nature of the transaction.

One Way Enron Manipulated Its Financial Statements Was to Sell