enron.docx - Ewomazino Jarikre 1 What are cookie jar...

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Ewomazino Jarikre 1. What are “cookie jar” reserves? Explain Enron’s use of this concept. A cookie jar reserve is an accounting practice in which company takes reserves from successful years of company and shift them against the losses from less successful years. This process ends with misleading the investors. Furthermore, David Barboza argues that, the Enron Corporation used undisclosed reserves to keep as much as $1.5 billion in trading profits off its books during the California energy crisis, according to six former managers and executives who handled or reviewed the accounts. The Securities and Exchange Commission and investigators from the Justice Department have interviewed witnesses to determine whether the practices violated securities laws by creating ''cookie jar reserves'' or a kind of corporate slush fund to doctor quarterly earnings reports, according to people who have been interviewed by investigators. The majority of Enron’s gains were ''paper'' profits on long-term contracts, rather than cash that could have helped Enron stave off the liquidity crisis that led to its breakdown. Enron's use of the reserves was approved by Arthur Andersen, the company's longtime auditor, and by Richard A. Causey, the company's chief accounting officer. His lawyer, J. C. Nickens, said that Mr. Causey -- who left the
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