After the class of Oct. 11, 2012, I thought about the reasons why GAAP rules should be enforced and related it to Enron; a once prosperous company that made itself famous through cheating on the financial statements.
Logo of Enron
GAAP, short for general accepted accounting principles, is a common set of procedures to which a company should follow when compiling their financial statements. Simply put, it’s like a law for companies to follow. If every company chooses to present whatever financial statement that pleases their investors, then the business world would be in a chaos. Companies could be in debt and still get a source of income through their investors. This was what Enron did for several years until the company was finally caught in 2001. By choosing to lie about its profits and hiding its debt, Enron was able to accumulate investor’s money and stay afloat in the market even though it was heavily drowned in debt. Clearly the executives and the auditor have no ethical values towards their investors and hence why the GAAP laws should be followed in order to prevent such scandal to happen again.
Former Enron CEO Jeff Skilling going to jail.
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