Indeed, there are few situations that have revealed the problems encountered when companies use third level estimates for their public financial reports. Instances in which transaction-based historical-based numbers have been misleadingly and/or fraudulently reported abound, such as companies reporting revenue before it is earned (and sometimes not ever earned), inventories misreported and mispriced, and expenditures capitalized rather than expensed. Mulford and Comiskey (2002) and Schilit(2002) provide many illustrations of such‘‘schenanigans’’ (as Schilit characterizes them). But they (and to my knowledge, few, if any, others) do not describe how fair-value numbers not grounded on actual market prices have been misused and abused. Enron’s bankruptcy and the subsequent investigations and public revelations of how their managers used level 3 fair-value estimates for both internal and external accounting and the effect of those measurements on their operations and performance should provide some useful insights into the problems that auditors are likely to face should the proposed SFAS Fair-Value Measurements be adopted.
Although Enron’s failure in December 2001 had many causes,2 both immediate (admissions of massive accounting misstatements) and proximate (more complicated, as described below), there is strong reason to believe that Enron’s early and continuing use of level 3 fair-value accounting played an important role in its demise. It appears that Enron initially used level 3 fair-value estimates (predominantly present value estimates) without any intent to mislead investors, but rather to motivate and reward managers for the economic benefits they achieved for shareholders. Enron first
学习林俊德心得体会revalued energy contracts, reflecting an innovation in how these contracts were structured, with the increase in value reported as current period earnings. Then level 3 revaluations were applied to other assets, particularly what Enron termed ‘‘merchant’’ investments. Increasingly, as Enron’s operations were not as profitable as its managers predicted to the stock market, these upward revaluations were used opportunistically to inflate reported net income. This tendency was exacerbated by Enron’s basing managers’ compensation on the estimated fair-values of their merchant investment projects. This gave those managers strong incentives to over-invest resources in often costly, poorly devised, and poorly implemented projects that could garner a high ‘‘fair’’ valuation. Initially, some contracts and merchant investments may have had value beyond their costs. But, contrary to the way fair-value accounting should be used, reductions in value rarely were recognized and recorded because they either were ignored or were assumed to be temporary. Market prices, specified as level 2 estimates in Fair-Value Measurements (FASB, 2005), were used by Enron to value restricted stock, although in most instances they were not adjusted to account for differences in value between Enron’s holdings and publicly traded stock, as specified by the FASB. Market prices were also used by Enron’s traders in models to value their positions. In almost all of these applications, the numbers used tended to overstate the value of Enron’s assets and reported net income. 本文来自优.文,论-文·网原文请找腾讯324,9114
As the following largely chronological description of Enron’s adoption of level 3 fair-value accounting shows, its abuse by Enron’s managers occurred gradually until it dominated their decisions, reports to the public, and accounting procedures. Although, technically, fair-value accounting under GAAP was limited to financial assets, Enron’s accountants were able to get around this restriction and record present-value-estimates of other assets using procedures that were accepted and possibly designed by its external auditor, Arthur Andersen.
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