Enron, fair value accounting, and financial crises: a concise history

Abstract

Purpose While the debate about fair value accounting (FVA) and the global financial crisis (GFC) of 2008-2009 has been explored in the academic and professional literature, there has been little debate about the consequences of FVA being implicated in the crash of Enron around 2001, and the effect of this on later FVA developments and the GFC. The purpose of this paper is to examine how well regulators, political actors, and other commentators may have understood the use, misuse, effects and consequences of FVA at the time of Enron, and to examine how this collective understanding (or lack thereof) has influenced later accounting policy, especially that going into and arising from the GFC. Design/methodology/approach Using content analysis, the commentary about FVA is traced through documents, primarily the US Congressional Hearings’ examination of the collapse of Enron that took place between December 2001 and December 2002. An assessment of the knowledge of and attitudes toward FVA is made from these and is then traced through later developments including policy responses before, during and after the GFC. Findings Links are found between the collapse of Enron and adjustments to FVA in the mid-2000s, which in turn became implicated in the GFC. These linkages are explored in the context of a fair value world view held by global standards setters in the mid-2000s. During the timeline from the 1990s to the mid-2000s, those advocating and adopting FVA as part of this world view, may have had collectively an insufficient understanding of the consequences or effects of FVA technology. Originality/value The study provides evidence of a direct link between Enron, the response of global standard setters, and the GFC controversy.

Pengaruh Aktivitas Pengendalian terhadap Risiko Penyalahgunaan Aset pada Bank Perkreditan Rakyat (BPR)

“…Pengendalian internal menjadi isu yang hangat diperbincangkan sejak munculnya kasus Enron pada 2001 (C. R. . Kasus Enron terjadi karena manajemen melakukan penggelembungan laba perusahaan (Haswell & Evans, 2018). Penggelembungan laba tersebut mengindikasikan adanya kelemahan pada lingkungan pengendalian internal Enron yang terbukti dari keterlibatan manajemen dalam kasus tersebut (Haswell & Evans, 2018).…”

“…Kasus Enron terjadi karena manajemen melakukan penggelembungan laba perusahaan (Haswell & Evans, 2018). Penggelembungan laba tersebut mengindikasikan adanya kelemahan pada lingkungan pengendalian internal Enron yang terbukti dari keterlibatan manajemen dalam kasus tersebut (Haswell & Evans, 2018). Dampak yang ada dari kasus Enron yaitu terbentuknya peraturan Sarbanes Oxley Act 404 yang mengharuskan emiten untuk melaporkan kondisi pengendalian internal atas pelaporan keuangan (C. R. (Adi, 2016).…”

Relationship between Fair Value Accounting Adoption and Financial Reporting Quality

“…As opinioned by Dignah et al (2017), the fair value accounting procedure plays a major role in the accounting standards since 1980. The initial involvement of the IAS 16 was to set accounting standards for the plant, pieces of equipment and property (Haswell, 2015). The accounting standard has been collecting the concept of fair value from 1980 to 2008, but due to some inappropriate evaluation in the theoretical adjustments, the proper fair value amount cannot be justified.…”

“…The improper decision makers will have an adverse effect on the benefits that are derived from the information. As per Haswell (2015), the accounting information includes the measures such as, the different types of processes used for decision making, the different reliable sources from which the information is gathered, the proper decision to be made and the ability of the users to implement the information properly. The information focuses on the link between the time of crisis and the normal time.…”

“…Without any doubt the nature of historical data and trends are useful when accurate value of the company needs to be determined at the time of acquisition. However, worth needs to be identified using present values because it is imperative to determine the present value of the company at the time of acquisition (Haswell, 2015). At this point, there has been continuous criticism to this principle because the economic situations always undergo constant changing and fluctuating dynamic movement.…”