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Team Assignment 3 - Team 7

This document contains a flow chart that shows the causes of the fall of Enron. It identifies several key factors: 1) Enron set up over 100 unconsolidated special purpose entities (SPEs) that were used to hide debt and eliminate assets from its balance sheets. This enabled Enron to generate cash flows and recognize unrealized gains. 2) Complex long-term contracts for Enron's trading business and inadequate monitoring of the SPEs allowed Enron to recognize highly subjective estimates as earnings. 3) Andersen's close working relationship with Enron and failure to share concerns with Enron's audit committee contributed to inadequate external auditing and monitoring.

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Kiek
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31 views

Team Assignment 3 - Team 7

This document contains a flow chart that shows the causes of the fall of Enron. It identifies several key factors: 1) Enron set up over 100 unconsolidated special purpose entities (SPEs) that were used to hide debt and eliminate assets from its balance sheets. This enabled Enron to generate cash flows and recognize unrealized gains. 2) Complex long-term contracts for Enron's trading business and inadequate monitoring of the SPEs allowed Enron to recognize highly subjective estimates as earnings. 3) Andersen's close working relationship with Enron and failure to share concerns with Enron's audit committee contributed to inadequate external auditing and monitoring.

Uploaded by

Kiek
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Visual Paradigm Online Free Edition

Caused by.. Fall of Enron Caused by..

Caused by..

Inadequate monitoring
Accounting violations
Irresponsible corporate and reporting by external
(internal)
governance of BoD audit

possible due to possible due to


due to..
transferring
governance power to..

100 unconsolidated Complex long-term Inadequate


contracts for trading monitoring/ Andersen's close not sharing concerns not publishing
SPEs (used as "back working relation with with audit committee documents of Enron's
door") business controlling SPEs
Enron "to retain client" 'high risk'
enabled enabled
Enron to Enron to
allowed..
Audit committee Compensation
(internal)  committee

eliminate the forward


generate cashflows Mark-to-market
contract receivables responsible for..
to pay out obligations accounting
from balance sheets

evaluating CEO
overseeing internal
allowed to performance and
and external auditors
recognize.. setting CEO
and finacial reporting
compensation
resulted in..

unhedged and acknowledged..


highly subjective
unrealized gains and
estimations of cost of Enron's accounting
losses as part of
fulfilling contracts practices 'leading
annual earnings
edge'

Visual Paradigm Online Free Edition

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