To investors, Enron appeared strong and prosperous. However, what was hiding outside of their financial statements would lead to one of the largest scandals in Wall Street history. Chief Financial Officer, Andrew Fastow, argued a clever twist of the rules prior to being handed a six year prison sentence. By the end of 2001, everyone was left wondering what had just happened.
Although Enron’s manipulation was deemed illegal, many publicly traded companies partake in similar methods without raising concern from regulators. It is an accounting practice commonly known as off-balance-sheet activity.
Let’s get into what off-balance-sheet activity is and how it is used.