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Unformatted text preview: unds such as Long-Term Capital Management—that
employed “rocket Scientists” and Nobel laureates to design
sophisticated computer models, Enron’s statement that it would
“refine” its own models should have raised concerns
“refine” © 2003, 2005 by the
AICPA Special Purpose Entities (SPEs) (Enron’s principal method of financial statement fraud involved the use of SPEs)
(Enron’s Originally had a good business purpose
Help finance large international projects (e.g. gas
pipeline in Central Asia)
Investors wanted risk and reward exposure limited to the
pipeline, not overall risks and rewards of the associated
Pipeline to be self-supported, independent entity with no
fear company would take over
SPE limited by its charter to those permitted activities
Really a joint venture between sponsoring company and
a group of outside investors
Cash flows from the SPE operations are used to pay
investors © 2003, 2005 by the
AICPA Enron’s Use of Special Purpose
To hide bad investments and poor-performing assets
(Rhythms NetConnections). Declines in value of assets
would not be recognized by Enron (Mark to Market).
Earnings management—Blockbuster Video deal--$111
million gain (Bravehart, LJM1 and Chewco)
Quick execution of related-party transactions at desired
prices. (LJM1 and LJM2)
To report over $1 bill...
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This document was uploaded on 03/29/2014.
- Spring '14