Business law Essay Example | Topics and Well Written Essays - 500 words - 18

Business law - Essay Example The courts might have used the written law to make their judgments. Andersen was found guilty of obstruction of justice for destroying of potential evidence by shredding their documents which could have been used by Securities and Exchange Commission (SEC), the agency of the US Government With the primary responsibility for regulation of securities markets. Under US GAAP, the only acceptable method of financial reporting is consolidation of controlled entities .non consolidation can only occur under specific conditions Outside USA; consolidated financial reporting is called group accounting and is required when one entity owns more than half of the other entity and can dictate its operations. Consolidating financial reporting is complex and requires financial statements to be combined and reported as a single financial report. Enron failed to comply with this ethic Enron major crime was misrepresentation and misleading the general public about their financial position. Enron did not disclose its real financial figures. The major requirement in US financial reporting is disclosure of information. The disclosure requirement is based on the premise that markets are efficient. Enron traded on future contracts called derivatives because they derived their value from underlying assets. The market of the contracts reduces the volatility of prices by fixing a price at a future date. Example assume Enron have two option contracts matching the same amount of a commodity over the same period of time. One contract was to purchase the commodity while other contract was to sell the commodity. Enron looked on to the future on the assumption that contracts were exercised and there were net results. After evaluating all cost, the net income (loss) was estimated. The net income (loss) was discounted to its present value and recorded as loss. Earnings reported under the market to market were easy to manipulate because active markets for contracts dating