Auditing Cases
Additional Cases for the Course
The case readings have been developed solely as a basis for class discussion.
The case readings are not intended to serve as a source of primary data or as an illustration of effective or ineffective auditing.
Reprinted by permission from Jay C. Thibodeau and Deborah Freier.
Copyright © Jay C. Thibodeau and Deborah Freier; all rights reserved.
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Case
61
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Enron
Enrori’s First Few Years hi~ 1985 Enron had assets along the three major stages of the supply chain of nat ural gas: production, transmission, and distribution. Natural gas was produced from deposits found underground. The natural gas was transmitted via pipe lines, or networks, of underground pipes, and sold directly either to industrial customers or to regional gas utilities, which then distributed the gas to smaller businesses and customers. Some companies in the industry had assets related to specific activities within the supply chain. For example, some companies owned pipelines but did not produce their own gas. These companies often entered into
Enron 2000 annual report, p. 7.
Joseph F. Berardino, remarks to U.S. House of Representatives Committee on Financial Services,
December 12, 2001.
Bala G. Dharan and William It Bufkins, “Red Flags in Enron’s Reporting of Revenues and Key
Financial Measures,” March 2003, prepublication draft (~.ruf.rice.edu/—bala/files/dharan-bufkins_ enronjed_flagsS4l 003.pdfl, p. 4.
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177
178 Section Six Comprehensive Company Cases
long-term “take or pay” contracts, whereby they paid for minimum volumes in the future at prearranged prices to protect against supply shortages.
In early 1986 ]lnron reported a loss of $14 million for its first year. As a result, the company employed a series of cost-cutting measures, including layoffs and pay freezes for top executives. Enron also started selling off assets to reduce its debt. Nevertheless, Enron’s financial situation was still bleak in 1987. That year
Moody’s downgraded its
The case readings have been developed solely as a basis for class discussion.
The case readings are not intended to serve as a source of primary data or as an illustration of effective or ineffective auditing.
Reprinted by permission from Jay C. Thibodeau and Deborah Freier.
Copyright © Jay C. Thibodeau and Deborah Freier; all rights reserved.
1•••
(
Case
61
®
Enron
Enrori’s First Few Years hi~ 1985 Enron had assets along the three major stages of the supply chain of nat ural gas: production, transmission, and distribution. Natural gas was produced from deposits found underground. The natural gas was transmitted via pipe lines, or networks, of underground pipes, and sold directly either to industrial customers or to regional gas utilities, which then distributed the gas to smaller businesses and customers. Some companies in the industry had assets related to specific activities within the supply chain. For example, some companies owned pipelines but did not produce their own gas. These companies often entered into
Enron 2000 annual report, p. 7.
Joseph F. Berardino, remarks to U.S. House of Representatives Committee on Financial Services,
December 12, 2001.
Bala G. Dharan and William It Bufkins, “Red Flags in Enron’s Reporting of Revenues and Key
Financial Measures,” March 2003, prepublication draft (~.ruf.rice.edu/—bala/files/dharan-bufkins_ enronjed_flagsS4l 003.pdfl, p. 4.
1
2
177
178 Section Six Comprehensive Company Cases
long-term “take or pay” contracts, whereby they paid for minimum volumes in the future at prearranged prices to protect against supply shortages.
In early 1986 ]lnron reported a loss of $14 million for its first year. As a result, the company employed a series of cost-cutting measures, including layoffs and pay freezes for top executives. Enron also started selling off assets to reduce its debt. Nevertheless, Enron’s financial situation was still bleak in 1987. That year
Moody’s downgraded its