I will attach the case study, we have to answer the questions at the end of the case study. There are 9 of them, can you help?
What were the business risks Enron faced, and how did those risks increase the likelihood of material misstatements in Enron's financial statements?
Enron's business risks emanated from its activities of brokering speculative energy futures. It became an intermediary by entering into contracts with buyers and sellers of energy and gained from arbitrage. Enron spread its activities even to the European markets. Its business risks increased as it launched a commodity selling site, brokered broadband internet access and entered energy generation projects all over the world.
These risks increase the likelihood of material misstatements because such risks would misfire and lead to losses but it became important for Enron to show increasing profits year after year to sustain its business.
What are the responsibilities of a company's board of directors? Could the board of directors at Enron?especially the audit committee?have prevented the fall of Enron? Should they have known about the risks and apparent lack of independence with SPE's? What should they have done about it?
The responsibility of the company's board of director lies in ensuring that the executives present accurate and complete corporate financial reports. The company's board and its audit committee should have defined the interaction between the external auditors and corporate audit committee and held corporate officers of Enron responsible for the financial reports of the company. Yes, the Board and the audit committee through setting well defined limits on the interaction between the corporate officers could have prevented the fall of Enron. The Board could have easily knows about the risks and the deception involved with the SPE and could have used their authority to curtail the transactions with the SPEs. At an earlier stage they could have inquired about the purpose of the SPEs and prevented their formation.
In your own words, summarize how Enron used SPE's to hide large amounts of company debt?
The SPEs used to borrow money for Enron and used to place Enron shares with the lenders as collateral. The money was passed on to Enron as revenues! The effect was two fold. The debts of Enron did not show up on its balance sheet and at the same time the revenues of Enron increased faster than the industry ...
This explanation provides you a comprehensive argument relating to Enron Corp and Anderson