Advanced Financial Accounting: Enron Case Study

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
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Table of Content

1ADVANCED FINANCIAL ACCOUNTING
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Introduction................................................................................................................................2
Assessment Task Part A.............................................................................................................2
a) Explanation of Mark to Market accounting.......................................................................2
b) SPE application by Enron for achieving the reporting objectives.....................................3
c) Rationale for stock options compensation scheme............................................................4
Assessment Task Part B.............................................................................................................5
a) Instances of measuring the methodologies from the annual report...................................5
b) Quantifying the methodologies and elements convenient for decision making................6
c) Analysis of the techniques deployed by Enron..................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

2ADVANCED FINANCIAL ACCOUNTING
Introduction
The overall segregation of the study is mainly based in two parts. The first part sates
the conceptualization of Mark to Market associated to the approach followed by the
management of Enron. The various aspects of the discussion have identified the motive of the
management for funding the contracts and achieving the general goals of financial reporting.
Some of the other sections of the discussions pertaining to the study has stated about the
various types of the important aspects associated to the high remuneration enjoyed by Enron.
These are seen to be inclusive of the stock options and reporting decisions which are
available to the top management. The section part of the discourse has identified the various
types of other aspects of the study which are associated with the assessment of the financial
statements and disclosures as per the accounting framework. This portion of the discussion
has also stated about the significant decisions which are available to the management at their
disposal. The final sections of the study have been able to highlight the different types of
concepts of the study which are seen to eb depicted with the differed types of critical analysis
for the approaches determined with the techniques used by the entities. These are also
evaluated for the application of the practical tools (Khan, 2017).
Assessment Task Part A
a) Explanation of Mark to Market accounting
Mark to market measure has been associated with the fair value of accounting
concepts which go through several changes like assets and liabilities. This has been stated
with performing an accurate presentation of the financial aspects of the company. The trading
business of Enron is also identified with the adoption of the M-to-M accounting approach.
This has been suggested with the long-term contract which is considered as per the PV as and
when the future cash flows got expensed. The most significant challenges for the company in

3ADVANCED FINANCIAL ACCOUNTING
terms of M-to-M accounting was identified for implementing MV agreements applicable for
more than 20 years. In the given situation, the income of Enron was meticulously expensed as
per PV of the net cash flows even after there has been a concern of viability related to
contracts and costs. In July 2000, Enron signed a 20-year agreement with Blockbuster Video
in services associated to entertainment on demand. Enron followed with this event by
identifying profit as more than $ 110 million pertaining to blockbuster deals even after there
was a serious concern of market demand and technical feasibility (Connell, 2017).
b) SPE application by Enron for achieving the reporting objectives
As per the definition of SPE, it is considered as a legal limited company or
partnership which aims at fulfilling the narrow objectives and temporary goals of any
organisation. The implementation of such a tool is mainly identified in those companies
which look forward to isolate the various types of financial risks. In general, the business
entities are seen to transfer the assets to the SPEs for the purpose of management and
providing rights to bigger projects so that they are able to achieve narrow scope of goals
without the consideration of putting the operation at risk (Kamau, Namusonge & Bichanga,
2016).
In addition to this, such a tool was applied by Enron for the purpose of funding the
financial burials and managing of concerns with certain assets. Enron was identified to fund
the acquisition from the producers concerning gas reserves. As a result of this, the investors
of SPE received considerable amount of revenues which were sourced from sales of the
reserves. From the beginning of 2001, Enron has used more than 100 SPEs. Moreover, in
1997 the company aimed for buying the stakes of the partners which were associated with the
leading joint venture deals (Bradley Jr, 2018). Despite of this, the company did not intend to
account for any date associated with the financing of business combinations. It is further
depicted that Enron used Chewco as its SPE entity for catalysing the dates and guarantees