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.

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. By not disclosing this information, Enron misled investors about the true nature of its financial situation and the risks associated with its operations. This lack of transparency ultimately contributed to the company's collapse. Choices A, B, and C are not directly related to the deceptive nature of the transaction, although they may be relevant accounting principles in other contexts.

One Way Enron Manipulated Its Financial Statements Was to Sell