Explanation

Only Statement I is correct:

Statement I: ✓ CORRECT

• Enron did use hundreds of Special Purpose Vehicles (SPVs) to hide debt and losses
• This resulted in understated liabilities and overstated equity on the balance sheet
• Earnings were indeed overstated through these accounting manipulations

Statement II: ✗ INCORRECT

• The description is backwards. Enron used mark-to-market accounting to book projected profits from assets that hadn't yet generated revenue
• They would declare profits based on projected future earnings, not wait until actual revenue was generated

Statement III: ✗ INCORRECT

• Arthur Andersen was Enron's auditor and did fail to catch (and in some cases explicitly approved) fraudulent accounting practices
• The statement says "neither failed to catch nor explicitly approved" which is incorrect - they did both

Therefore, only Statement I is true, making Option C the correct answer.

This case highlights significant failures in corporate governance, internal controls, and external audit oversight.