The Enron Case

Introduction

The collapse of Enron has cast revealing light not just on the corruption of business leaders, auditors and politicians but on the appearance of deregulated capitalism as it has emerged from the stock-market bubble. It has highlighted, too, the vulnerability of the broad layers whose pensions are tied up in the savings routine so ingrained in the economy. This failure has affected not only Enron's employees but tens of millions of holders of 401(k) and defined-benefit retirement schemes. Enron's demise was significant not just because of its size (other concerns failing at the same time, such as K-Mart or LTV Steel, had more employees and pensioners) but because it had represented the cutting-edge of corporate strategy, living proof that financialization and deregulation were the wave of the future. Enron was far more interested in maximizing trading opportunities than producing electricity. Its momentum came not from productive investment or innovation but from financial engineering.

ENRON Scandal

Regarding to Enron collapse, the regulatory natural environment in which the auditing occupation functions should be restructured. According to Ramsay report, the review unaligned supervisor board should be established to supervise review companies' processes, and supervise compliance with non-audit service charge revelation and the audit committee should supervise the auditor's self-reliance and effectiveness.

With consider to matters arising from SPE, Raptors were not hedges in the financial sense of transferring risk to a third party, but rather a means of soaking up deficiency with a book of Enron portions assisted by the hedging entity. However, Anderson approved Enron not to consolidate Raptor because Raptor is characterised as SPE that means Andersen had seriously breached the true and equitable criterion.

Enron bypass to put pressures on balance sheet by means that issuing portions would go to an affiliate and then proceed to the public, the money of which would come back to Enron by giving off the note or related receivable. For demonstration, Enron sold inventory or assets of some sort in 1999 to an affiliated entity and received a promise to pay for those assets from that affiliate.

According to notion of exceptional purpose entity, out-of-doors proprietors must make a 'substantial' investment (normally 3% of total capital), and their investment should actually be at risk. Second, the out-of-doors owners must have some command over the investment the entity. In accordance with FASB, SPE is not necessary to be consolidated. Therefore, Enron employed its advantage to transfer its risk to SPE (for demonstration Chewco and Raptor) by decreasing its liabilities or liabilities, which is highly rated by financial analyst and credit agencies. In application the notion of SPE in Australian, SPE must be consolidated with its parent company. According to AASB 1024.23, those internal transactions encompassing liabilities, investments and economic leasing, etc should be eradicated in full because those entities are comprised in Enron group. Regarding to SPE feature, the submission of SPE encompasses tax advantage and decrease the cost of borrowing. However, Enron move its risk to another party and mask of Enron's liability position.

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