Explanation

All three statements about the Enron Scandal are true:

Statement I: TRUE

• Enron did use hundreds of special purpose vehicles (SPVs) to hide its actual financial performance
• This resulted in understated liabilities and overstated equity on the balance sheet
• Earnings were indeed overstated through these accounting manipulations

Statement II: TRUE

• Enron used mark-to-market accounting for physical assets
• They would immediately book projected future profits on assets that hadn't yet generated actual revenue
• This was a key accounting manipulation that inflated their reported earnings

Statement III: TRUE

• Arthur Andersen was Enron's external auditor
• Andersen failed to catch many fraudulent accounting practices
• In some cases, they even approved questionable accounting treatments
• Their failure as auditors was a major factor in Enron's collapse

The Enron scandal (2001) was one of the largest corporate fraud cases in history, involving massive accounting fraud, the use of off-balance-sheet entities, and the eventual bankruptcy of what was then the seventh-largest company in the United States.