Assignment: The Enron and World Com Scandals
ACC/260 September 17, 2010
1. Which segment of its operations got Enron into difficulties? The segment of operations that started the difficulties with Enron went back to the guarantee of loans in order to bridge financing with investments of an outside investor that was never found. Documents were later forced to be restated with activities of other companies that had to be consolidated into Enron’s accounts.
3. Did Enron’s directors understand how profits were being made in this segment? Why or why not. No. Enron’s directors did not know how the profits were being made because they were kept in the dark about everything until it went public.
5. Ken Lay was the chair of the board and the CEO for much of the time. How did this probably contribute to the lack of proper governance? Ken Lay was in charge of Enron and all of its activities. He knowingly allowed things to happen. This led to the sever lack of governance because he was allowing the wheeling and dealing to go on without thinking ethically about the consequences. 6. What aspects of Enron governance system failed to work properly and why? Enron’s board supported a disclosure that only gave a slight insight to the company’s earnings to the public and investors. The Board failed to exercise prudent judgment, failed to challenge management when necessary, and, as a result, failed to adequately protect the interests of the shareholders.
9. Identify the conflict of interest in: SPE activities, Arthur Andersen’s activities, and Executive activities. The conflict with the SPE was that Enron was keeping their losses off of the end of year reports to offset other dealings that were not profitable. If true numbers had been reported losses would have been seen and not covered up. Enron created ways to use the SPE's that had never been used. The original purpose was sound and creative, but Fastow and Kopper got involved. Enron...
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