One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms, while promising 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 cash raised should have been recorded as short-term loans.
B)The assets should have been listed on the balance sheet as long-term assets.
C)Cash raised by selling assets should not be recorded as revenue.
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

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 would have given investors a clearer picture of the company's financial situation and potential future obligations. Recording the incoming cash as revenue without disclosing the promise to buy back the assets is deceptive because it artificially inflates the company's revenue and does not accurately represent its financial health.

One Way Enron Manipulated Its Financial Statements Was to Sell