Which segment of its operations got Enron into difficulties? The first thing that got them into trouble was the fact that Kopper was appointed to Fastow and he was an employee of Enron. I do not believe that he had the best interest involved. Another thing was that over 11 million was supposed to be invested and it never was. I believe that this was the start of the problems! Another thing was the fact that Enron was incorrectly booking revenue for services that were not yet done.
Enron stocks were paid by promissory notes and not cash. 3. Did Enron’s directors understand how profits were being made in this segment? Why or why not? No I do not believe that Enron directors understood how the profits were being made. I think that if they understood something would have been done about it. 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? With the lack of proper governance was the down fall of the company.
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Any CEO should know what is going on with the operations of the company. Failure to know what is going on in the company can affect the operation of the company. The CEO should have noticed that the revenue was overstated. 6. What aspects of the Enron governance system failed to work properly, and why? The aspect of the Enron governance system that failed is basically appears to be all of it. Nothing was done until they were put on the spots. Then at that point they started questioning what went wrong. 9. Identify conflicts of interests in: • SPE activities Arthur Andersen’s activities • Executive activities The conflict of interest fell when Kopper was appointed to manage Chewco since we was an employee of Enron. The hedge rhythm was another activity that affects Enron. Arthur Andersen activities also did not help the matter any. From what I understand they took money for fees and in so many words looked the other way while their client did illegal activities. WorldCom questions 1, 3, 4, and 5 1. Describe the mechanisms that WorldCom’s management used to transfer profit from other time periods to inflate the current period.
The mechanisms that WorldCom management used to transfer profit would be by transferring approximately $771 million from certain line expense accounts to a PP;E capital expenditure account. 3. How should WorldCom’s board of directors have prevented the manipulations that management used? I believe that part of the problem is the fact that they need better internal controls. Plus senior management manipulated the financial statements so that it did not show a loss. 4. Bernie Ebbers was not an accountant, so he needed the cooperation of accountants to make his manipulations work. Why did WorldCom’s accountants go along?
Well to start WorldCom accounts were hired from Arthur Anderson which says that they are used to doing things that have no ethics. This in returns means that they are going to do whatever the senior management wants them to do no matter if it is wrong. 5. Why would a board of directors approve giving its Chair and CEO loans of over $408 million? They thought that he was buying shares back in the company or even for margin recalls. If they were expecting this they should have had some way to verify that the money they were lending him actually was being used for what it was supposed to be on.