#Translations:
Thanks to Benford's law you will discover accounting frauds in Enron's financial statements of years 1998, 1999 and 2000. You will be able to visualize digit's occurrence in all of the four most important financial statements generated by an enterprise it will be generated two statistical tests for the occurrence of certain or more extreme digits.
Indicates the financial position of an economic entity in a given date. It is a picture of the enterprise in a certain time.
Financial Statements show healthy finances. When we invest in an enterprise, we want this one to have large incomes and low debts. If an enterprise has large incomes is a good investment option. Accounting statements are a base to financial analysts, because they help decision making process on buying and selling enterprise positions. Those who earn tons of shares (could be an owner) are benefited when the share goes up. But not only the shareholders are benefited, they can also help you to get loans. So, why not inventing numbers, in other words, pretend earning more and loosing less? This is named fraud, and it is a crime. That is why companies must be audited, the external auditing deals with verifying that financial statements contents are true.
- Consolidated Income Statement:
Income Statement. - Consolidated Balance Sheet:
Balance Sheet. - Consolidated Cash Flows Statement:
Cash Flows. - Consolidated Changes in stockholder's equity:
Changes Equity.
Enron was in the energy industry. At the beginning enron managed gas pipelines then expanded their operations as intermediary in future contracts and natural gas derivatives as well as the construction and operation of gas pipelinesand energy plants around the world. In 1997 Jeff Skilling arrived as COO (Chief Operations Officer) begging for bigger income, but it never arrived. Enron's executives received their salary in stocks, that's the reason mattered that stock's price went up adn they would do whatever to get it. Enron was audited by Arthur Andersen, this company was founded in 1913 and disappeared in 2002 due to covering fraudulent accounting operations by Enron, receiving around $1,000,000 dollars a week. In August of the year 2000 Enron reached a $90.56 per share. By 2001 the price went down until december the second when they asked for bankruptcy protection. No one could believe Enron's financial statememts were corrupted. >Publishing fake information in any part of a financial statement.
If you know that your finances are not healthy you sell your stocks before anyone notice it.By 2001 Kenneth Lay had selled 300 million shares and Jeff Skilling 200 millions. There are a lot of information on the internet, in articles and documentals.
The idea on analizing Enrons finances was taken on a book's (la seduccion de las matematicas) chapter dedicated to Benford's law. Numbers generated by a human do not follow Benford's law.
Numbers in nature follow a particular distribution.
According to Benford's law, number one appears more frequently than number two, and number two appears more frequently than number three and so on. The human being when trying to generate numbers, wants to be as random as posible. And for some reason belive that number 1, 2 or 3 are not as random as 6, 7, 8. That is probably why they are repeted more frequently.
This is the last report for the already broken Enron Corp.
This script will let you visualize the digits count of all financial statements presented on that year, also it plots the relative digits count.
It also allows to compare the Benford distribution with Enron's and its relative comparisons.
Lastly it plots the cumulative distribution for the Kolmogorov-Smirnov test.
You will make two statistical tests.
- Chi squared goodness of fit.
- Kolmogorov-Smirnov. Based on the supremum difference of the cfd between what is beaing seen and what it is expected.
In order to analize various statements in different files of several companies.
I would use input to input a string indicating the beginning and another for the ending.
The rest could be generalized using this code.