- Instead of creating a wholly owned subsidiary, Enron had its top management(the CFO) become a partner/director in a operating SPV which was wholly financed by Enron, which sometimes even guaranteed their external debt from banks . The economic substance remained the same-that Enron ran the risk of its capital being lost- but this was not reflected in books of accounts
- WorldCom faced declining revenues due to sector problems. It entered into capacity swaps with AT&T and others. These swaps were just exchange of inventories but were recorded as sales to boost the topline(bottomline remaining unchanged)
- Lehmann did not want to reveal its portfolio of illiquid securities. It therefore decided to 'sell at quarter end and buyback later' its illiquid assets. The gimmick named 'Repo 105' overstated the liquidity while complying to the letter of GAAP
Investors therefore should not let their guard down even under IFRS. They now must contend with the chance of fair value fraud(to be explored in subsequent posts).