Case enron Essay

Enron faces most of the risk ordinarily faced by any energy company, including price instability and foreign currency risks. Enron operated in many different areas of the initiation with different regulatory and political risks. Enron faced railway line risks such as a complex business model, extensive use of derived functions and special purpose entities, aggressive transaction structuring and account, rapid expansion of business done complex and unconventional ventures, extensive reliance on credit rating, and limitations in GAAP. The complex nature of the business model of Enron increased the equallihood of material misstatements.It enabled the management to overstate its revenue while not disclosing the genuine value of its debt. The risk of fraud by management was high. The transactions involving SPEs essentially involved Enron receiving borrowed monetary resource that were shown as revenue without recording liabilities. Also, the come up of misstatements was huge as En ron had hundreds of such SPEs. Complex financial derivative transactions were used to hide enormous amounts of debt. Huge increases in borrowing were made to look like hedges for commodity trades rather than new debt financing.The network of SPEs along with complicated speculations and hedges kept an enormous amount of debt off the balance sheet. The accounting standards were inadequate in providing for the proper accounting of these transactions. The loopholes in the standards were used to bodily structure transactions in such a way that hundreds of SPEs were excluded from consolidation. Also, the management took advantage of the complexity of accounting standards to shroud the actual economic substance of the transactions. Adequate disclosures with regard to related party involvement and securing remote SPE investors against possible losses were not made.