Auditing Cases

22626 Words Dec 1st, 2014 91 Pages
Additional Cases for the Course

The case readings have been developed solely as a basis for class discussion.
The case readings are not intended to serve as a source of primary data or as an illustration of effective or ineffective auditing.

Reprinted by permission from Jay C. Thibodeau and Deborah Freier.
Copyright © Jay C. Thibodeau and Deborah Freier; all rights reserved.

1•••

(

Case

61
®

Enron

Enrori’s First Few Years hi~ 1985 Enron had assets along the three major stages of the supply chain of nat ural gas: production, transmission, and distribution. Natural gas was produced from deposits found underground. The natural gas was transmitted via pipe lines, or networks, of underground pipes, and sold directly either to
…show more content…
02—27, August 2002, p. 7.
6 Bethany McLean and Peter Elkind, The Smartest Guys in the Room: The Amazing Rise and
Scandalous Fall of Enron (New York: Penguin Group, 2003), p. 34.

(

Case 6.1

Enran

179

profits the differences between the prices at which it sold and purchased the gas.
Enron’s physical market presence (owning the pipelines and charging a price for distribution that was proportional to the spot price of gas it might purchase) helped mitigate the risk of a price increase of the gas it was purchasing.7
In response to the problem of getting producers to sign long-term contracts to supply gas, Enron started giving such producers cash up front instead of payment over the life of the contracts. Enron then allowed the natural gas con tracts it devised—which were quite complex and variable, depending on different pricing, capacity, and transportafion parameters—to be traded.

Enron Expands beyond Natural Gas
Enron decided to apply its gas trading model to other markets, branching out into electricity and other commodity markets, such as paper and chemicals. To accomplish its expansion strategy, Enron sought to pursue an “asset-light” strategy.
Enron’s goal was to achieve the advantages of a presence in the physical market without the disadvantages of huge fixed capital expenditures. For example, in nat ural gas, Enron divested its assets related to pumping gas at the welll’iead or selling gas to customers, and then set out to acquire

More about Auditing Cases

Open Document