1. What problems did Enron encountered?
Many went sour in the early months of 2001 as Enron’s stock price and debt rating imploded because of loss of investor and creditor trust
Methods the company used to disclose (or creatively obscure) it’s complicated financial dealings were erroneous and, in the view of some, downright deceptive
The company’s lack of transparency in reporting its financial affairs, followed by financial restatements disclosing billions of dollars of omitted liabilities and losses, contributed to its demise
2. How did the management react?
Enron did not report debt on its balance sheet. Through collaboration with major banks, SPEs borrowed money, often with direct or indirect guarantees from Enron. The cash was…show more content… When similar transactions cannot be identified and active markets do not exist, the auditor has the unsolvable problem of finding a way to know the intent of the party controlling the transaction.
4. How did they react?
The Enron implosion has wreaked more havoc on the accounting profession than any other case in U.S. history. Critics in the media, Congress and elsewhere are calling into question not only the adequacy of U.S. disclosure practices but also the integrity of the independent audit process. The general public still questions how CPA firms can maintain audit independence while at the same time engaging in consulting work, often for fees that dwarf those of the audit.
The CEOs of the Big Five accounting firms made a joint statement on December 4 committing to develop improved guidance on disclosure of related party transactions, SPEs and market risks for derivatives including energy contracts for the 2001 reporting period. In addition, the Big Five called for modernization of the financial reporting system in the United States to make it more timely and relevant, including more nonfinancial information on entity performance.
5. Give your opinion in the case.
For me, it is so disappointing that everyone in Enron was in on the scam including the top management, directors, internal and external