The paper "Creative Accounting as a Problem in Managerial Accounting - Enron" is a perfect example of a finance and accounting case study. Enron was one of the leading energy companies in the world until its collapse in the year 2001 due to a huge corporate scandal. The collapse of Houston based Enron Corporation led to the dissolution of Arthur Andersen. Arthur Andersen was among the five biggest audit and accountancy partnerships around the world. Apart from Enron being the largest bankruptcy reorganization in the history of America, it is also viewed as the largest audit failure.
An investigation into the causes of the collapse of Enron cited creative accounting as the major factor that contributed to the failure of the company. The company’ s auditor, Author Anderson, which was one of the renowned auditing firms, was greatly involved in manipulative accounting practices. The management of the organization, the Chief Financial Officer and other executives not only misdirected Enron's board of directors and audit committee on high-risk accounting practices but also forced Anderson to disregard the issues. Through their creative accounting practices, they were able to falsely display Enron Corporation as one of the most innovative, fastest-growing and effective managed entities within the United States of America.
Therefore, by utilizing Enron Corporation as a case study, this paper seeks to evaluate creative accounting as a problem in managerial accounting. Creative accounting as a problem in managerial accounting Creative accounting refers to accounting practices that comply with regulations of accounting standards however in real sense they diverge from the same standards. The practice can also be described as a process where accountants apply their accounting knowledge to maneuver or manipulate reported figures.
The practice has for many years proved to be a problem in managerial accounting. Managerial accounting, which mainly concerns with the provision of information to managers, has for a long time been affected by creative accounting practices (Warren and Reeve 720). The use of creative accounting practices has for a long time misinformed managers, particularly on matters relating to the company’ s revenues, profits, assets, inventories and liabilities (Mowen 150).
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