Financial Statement Fraud.Enron.AICPA

2003 2005 by the aicpa value at risk var methodology

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Unformatted text preview: , Enron CEO, left on August 14, 2001 © 2003, 2005 by the AICPA Enron’s revenues and income Enron’s Year Revenues Income Income Income (Restated)* (Restated)* 1997 $20.2 B $105 M $9 M 1998 $31.2 B $703 M $590 M 1999 $40.1 B $893 M $643 M 2000 $100.1 B $979 M $827 M * Without LJM1, LJM2, Chewco and the “Four Raptors” partnerships. There ©were hundreds of partnerships—mainly used to hide debt. 2003, 2005 by the AICPA “Value at Risk (VAR)” Methodology Some warning signs disclosed by Frank Portnoy before January 24, Some 2002 Senate Hearings 2002 Enron captured 95% confidence intervals for one-day holding Enron periods—didn’t disclose worst case scenarios periods—didn’t Relied on “professional judgment of experienced business and risk Relied managers” to assess worst case scenarios managers” Investors didn’t know how much risk Enron was taking Enron had over 5,000 weather derivatives deals valued at over $4.5 Enron billion—couldn’t be valued without professional judgment billion—couldn’t From the 2000 annual report “In 2000, the value at risk model From utilized for equity trading market risk was refined to more closely correlate with the valuation methodologies used for merchant activities.” activities.” Given the failure of the risk and valuation models at a sophisticated Given hedge f...
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This document was uploaded on 03/29/2014.

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