Factors Contributing to the Collapse of Enron Limited and Financial Accounting Techniques Used by Bega Cheese and Mackay Golf Club

ADVANCE FINANCIAL ACCOUNTING

Part A
The collapse of Enron Limited was supported by many points and key factors that were
presented by the analysts with various explanations:
A. All the assets and liabilities of the organization why recorded at the future value so as to
ascertain the marketing conditions in the present situation. The technique which is used by
the organization analyses the present prices as the base ones and the expected future prices
are determined at a very high value because of the exposure to fluctuations. These techniques
are commonly used by the organizations while getting involved in long-term contracts so as
to determine the costs and expenditures that are made on the assets for the determination of
the PV of the future cash flows.
It was also observed that the organization had already make decisions which will help it to
earn their revenue quickly. The scheme used by the organization to earn daily profit posed
them to a disadvantage and led it to ignore any profit or loss suffered by it. The Organisation
was involved in many contracts with me help them to earn profits in the future which can be
used to repay any debts or expenses of the organization (Matthew, 2015). A test carried out
by the organization stated that there were many contracts that were not profitable for the
company because of which manipulation and alternations where do we made in the financial
reports so as to save the firm's reputation for the future (Berensen, Richard & Oppel, 2001)
B. The funds provided to the organization have been collected with the help of debt financing
and equity investors. The money that has been gathered by the organization was used to fulfil
the tasks of loan sanctioning, risk sharing, financial risk management, and asset transfers. A
huge amount of capitals were gathered by the organization that can be used to fulfil various
purposes and projects that will help the organization to prosper in the future. Because of the
increase in funds, the transaction also increased which may have led to manipulations in the
financial report. Hence, proper scanning of the reports was made in order to find the
vulnerabilities present in the report. In the year 1997, the organization Enron Limited was
going to enter into a partnership for a joint venture process. The Organisation was busy in
preparing the contract statement because of which it was not able to analyze the financial
statements properly which consisted of various transaction results and losses. Formal
announcements were made and Company was still urging to enter into a joint venture. This
led to the violation of a lot of accounting principles and Standards that were not used while
preparing the financial statements (Healy & Palepu, 2003). The debt, as well as the liabilities
2

of the organization, was understated in the balance sheet because of which problems were
faced by the company in the future.
The disclosures made by the organization were in association to the SPE. The population was
aware of such techniques and still trusted the company for making Investments in it. Many
representatives were assigned in order to analyze and disclose the factors of SPE using the
gathered funds in order to maintain the leverage of the financial reports of the organization
(Healy & Palepu, 2003).
The top management structure of the organization gives priorities to some facts that will help
them to work in accordance with the investor’s point of view. These priorities will also help
the organization to hide the irrelevant intentions and earn huge profits. A lot of information in
relation to the stock and threats related to it were analyzed. This can be clearly understood by
the help of agency theory which states diet the organization and the top level management
can make several decisions for the fulfilment of self-interest (Hoffelder, 2012). Hence, the
theory clearly states that the officials work for their own interest and profit only. While
analyzing the accounts of Enron Limited, it was observed that the management was the major
official which provided with the stock options. Also, the total amount of public investments
were increased which can only be achieved if the company was earning profits at a high rate
in its day to day business.
3