AGGRESSIVE ACCOUNTING, BIAS IN AUDITING AND ENRON
Accounting is sometimes called the "language of business". Accounting provides managers with the tools they need to plan effective and focus attention on deviations from that plan, direct day to day operations and arrive at the best solution to the operating problems faced by the organization. However, as the language of business, accounting is also used by those outside the organization to make decisions that directly affect the company. This research considers two areas that can affect the reliability of accounting dataùaggressive accounting and bias in auditingùand the environment that led to accounting difficulties at Enron.
Aggressive accounting differs from conventional accounting techniques in that it strives to present the company's information in the most attractive terms as possible. While aggressive accounting does not encourage prevarication, it does strive to present an environment in which favorable information is considered and used over information that puts the company at risk. For example, a company might change its inventory valuation from last-in-first-out (LIFO) to first-in-first-out (FIFO) to gain a better relationship between assets on the balance sheet. This is an example of aggressive accounting: the change is not illegal, but there is no overwhelming accounting reason why the change needs to take place (Curan, 1995). Another example of aggressive accounting is in its presentation of summary rather than detailed information. By presenting summary information and burying detail in supplements or attachments, managers can take advantage of the reluctance of some readers to delve into the additional supporting material that may be cumbersome and difficult. The summary information is accurate, but there may be specific information in the notes that render a vastly different opinion from the one that the summary information puts forth.
Informatio...