Aggressive interpretation of accounting standards
In 2000 Enron was one of the world’s largest energy companies; it was one of the world’s largest companies. It was a habitual abuser of accounting rules. It aggressively interpreted the accounting rules.
This is how a former employee describes the process:
“Say you have a dog, but you need to create a duck on the financial statements. Fortunately, there are specific accounting rules for what constitutes a duck: yellow feet, white covering, orange beak. So, you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose. The you say to your accountant, “This is a duck! Don’t you agree that it’s a duck?” And the accountants say, “yes, according to the rules, this is a duck”. Everyone knows that it’s a dog, not a duck, but that doesn’t matter, because you’ve met the rules for calling it a duck.”
Enron had lots of dogs pretending to be ducks. Eventually the duck imposters were discovered which ultimately led to the demise of Enron. At the time, Enron became the largest bankruptcy in US history.