Enron Case Study

Question 1

Who were the big 5

Answer 1

1. Arthur Andersen
2. PWC
3. Deloitte
4. EY
5. KPMG

Question 2

Who are the big 4

Answer 2

1. PWC
2. Deloitte
3. EY
4. KPMG

Question 3

What does deregulation mean

Answer 3

-> removal of regulation or restrictions in an industry
-> eg. Enrons case, energy became a free market

Question 4

What was the dot com bubble

Answer 4

-> internet bubble
-> 1995 to 2000
-> where investors were pumping money into internet start ups in the hopes they would flourish into something big and profitable

Question 5

Off balance sheet reporting means

Answer 5

-> where items such as assets or liabilities are not recorded in the balance sheet, and have to be disclosed in the notes to the accounts

Question 6

Did Enron achieve objective of financial reporting

Answer 6

No, they mislead investors, employees, public on the face of the accounts
->revenue was shown as exponential
->debt/equity ratio was really low
->stock price kept on increasing

In reality
->revenue figures were fake
->debt was held off balance sheet
->stock price was based on falsely reported numbers

Question 7

Did regulators do their job

Answer 7

1. SEC= approved use of MTM accounting
2. Auditors= paid to look the other way
3. US congress= approving the deregulation of the energy industry
4. Internal auditors= function either non existent or failed to fulfil duties