By Harold Bierman Jr
There's a good deal of bewilderment concerning the elements that resulted in Enron s cave in. this significant ebook addresses this challenge via offering a coherent clarification of the accounting and finance difficulties linked to the cave in. The Skilling Lay trial, because it is said to accounting or finance matters, is seriously defined in addition. via its well-balanced tackle occasions surrounding the trial, the ebook for that reason permits readers to research the validity of the arguments provided via the U.S. lawyers. Contents: The Enron luck and Failure; Enron as of 31 December 2000; First Six Months of 2001: ahead of the hurricane; Sherron Watkins Letter to Kenneth L Lay; The Clouds Burst; The 100-Year Flood; JEDI and Chewco: no longer the motion picture; LJM1 and Rhythms; LJM2 and Raptors I and III; LJM2 and Raptors II and IV; different Transactions; The cave in; The Indictment of Lay and Skilling; The Trial; A Slice of the Skilling Lay Trial; The Skilling Lay Trial: reasonable or Foul?; Mark to industry Accounting: Feeding the expansion Requirement; Concluding Observations.
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Extra info for Accounting Finance Lessons Of Enron: A Case Study
48–49) The existence but not the extent of related party transactions was disclosed. In 2000 and 1999, Enron entered into transactions with limited partnerships (the Related Party) whose general partner’s managing member is a senior ofﬁcer of Enron. The limited partners of the Related Party are unrelated to Enron. Management believes that the terms of the transactions with the Related Party were reasonable compared to those which could have been negotiated with unrelated third parties. The “hedging” of Enron’s merchant investments is a signiﬁcant contributor to Enron’s collapse.
Also, Enron contributed a put option to a trust in which the Related Party and Whitewing hold equity and debt interests. On 31 December 2000, the fair value of the put option resulted in a $36 million loss to Enron. There was an internal Arthur Andersen communication in February 2001 that “suggests that Andersen may have had concerns about the disclosures of the related-party transactions in the ﬁnancial statement footnotes. Andersen did not express such concerns to the Board” (p. 203 of the Powers Report).
Is that really funds ﬂow or is it cash from equity issuance? We have recognized over $550 million of fair value gains on stocks via our swaps with Raptor. Much of that stock has declined signiﬁcantly – Avici by 98 percent from $178 million, to $5 million; the New Power Company by 80 percent from $40 a share, to $6 a share. The value in the swaps won’t be there for Raptor, so once again Enron will issue stock to offset these losses. Raptor is an LJM entity. It sure looks to the layman on the street that we are hiding losses in a related company and will compensate that company with Enron stock in the future.