Case enron Essay

Enron faces most of the risk ordinarily faced by any heartiness company, including price instability and foreign currency risks. Enron operated in many contrastive areas of the world with different regulatory and political risks. Enron faced business risks such(prenominal) as a complex business model, extensive use of derivatives and finical purpose entities, aggressive transaction structuring and accounting, rapid expansion of business by means of complex and unconventional ventures, extensive reliance on credit rating, and limitations in GAAP. The complex nature of the business model of Enron increased the likelihood of strong misstatements.It enabled the counseling to overstate its revenue while not disclosing the actual take to be of its debt. The risk of fraud by management was high. The transactions involving SPEs essentially involved Enron receiving borrowed funds that were shown as revenue without recording liabilities. Also, the amount of misstatements was capaciou s as Enron had hundreds of such SPEs. Complex financial derivative transactions were use to hide enormous amounts of debt. Huge increases in borrowing were made to wait on 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 body 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 content of the transactions. Adequate disclosures with regard to related party involvement and securing outside SPE investors against executable losses were not made.