Answer-first summary for fast verification
Answer: I.
## 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.
Author: LeetQuiz Editorial Team
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Which of the following statements about Enron Scandal are/is true?
I. Enron had used hundreds of special purpose vehicle to hide flaws in its actual financial performance. As a result, Enron's balance sheet understated its liabilities and overstated its equity, and its earnings were overstated.
II. Enron built a physical asset and then immediately declare a projected mark-to-market profit on its books, but didn't do this when it had not yet made any money from the physical asset.
III. Enron outsourced its audit function to Arthur Andersen. And Andersen neither failed to catch nor explicitly approved many of fraudulent accounting practices that led to Enron's collapse.
A
I, II
B
II, III.
C
I.
D
I, II, III.
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