The paper shows that, in recent months, the rules
regarding special purpose entitles have come under great scrutiny. Special
purpose entities allow firms to raise debt while at the same time making it almost impossible for investors to determine the actual amount of debt exposure. The paper shows that this was the case with Enron, which collapsed in 2001 when their fraudulent
accounting practice were exposed. This paper investigates which accounting practices were violated as it relates to the SEC rules on Special Purpose Entities and full disclosure. It also discusses the ethical issues that the company made
regarding the firms' accounting practices.