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Special-purpose entities were created to mask significant liabilities from Enron's financial statements. These entities made Enron seem more profitable than it was, and created a dangerous spiral in which, each quarter, corporate officers would have to perform more and more financial deception to create the illusion of billions of dollars in ...
An Enron manual of ethics from July 2000, about a year before the company collapsed. Enron's complex financial statements were confusing to shareholders and analysts. [1]: 6 [10] When speculative business ventures proved disastrous, it used unethical practices to use accounting limitations to misrepresent earnings and modify the balance sheet to indicate favorable performance.
In the long history of financial frauds, Enron ranks near the top of the list, with the once high-flying energy trading company suddenly unraveling in a web of lies and accounting sleight-of-hand.
FIN 46, Consolidation of Variable Interest Entities, was an interpretation of United States Generally Accepted Accounting Principles (U.S. GAAP) published on January 17, 2003 by the U.S. Financial Accounting Standards Board (FASB) [1] that made it more difficult to remove assets and liabilities from a company's balance sheet if the company retained an economic exposure to the assets and ...
The post-Enron rules of the Financial Accounting Standards Board, which require some measure of independence of a special purpose entity from the operating company, and genuine economic substance to the transaction in which the SPE is a party, made it difficult or impossible to structure a synthetic lease SPE, so synthetic leases have ...
A special-purpose entity (SPE; or, in Europe and India, special-purpose vehicle/SPV; or, in some cases in each EU jurisdiction, FVC, financial vehicle corporation) is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfill narrow, specific or temporary objectives.
The entity does not have enough equity to finance its activities without additional subordinated financial support (e.g., the entity is thinly capitalized) The equity holders, as a group, lack any one of the common characteristics of a controlling financial interest: The power to direct the economic activities of the entity through voting rights
Fastow was one of the key figures behind the complex web of off-balance-sheet special purpose entities (limited partnerships which Enron controlled) used to conceal Enron's massive losses in their quarterly balance sheets. By unlawfully maintaining personal stakes in these ostensibly independent ghost-entities, he was able to defraud Enron out ...