The Enron and WorldCom Scandals
1. Which segment of its operations got Enron into difficulties?
The segment of its operations that got Enron into trouble was Kopper and Dodson creating a series of limited partnerships and limited companies through which to operate their interests, but Kopper had no outside investor at risk.
3. Did Enron’s directors understand how profits were being made in this segment? Why or why not?
I do not think Enron’s directors understood how profits were being made in this segment. They were unable to rely on the ...view middle of the document...
6. What aspects of the Enron governance system failed to work properly, and why?
The aspect of the Enron governance system that failed to work properly was the accounting firm. Their primary function was to assure that the company was accurately and completely disclosing its financial results and condition.
9. Identify conflicts of interests in:
• SPE activities- Enron used several SPE’s to hide debt and overstate equity and earnings
• Arthur Andersen’s activities- Management got the idea for some of their most creative schemes from the consulting department of Arthur Andersen, meanwhile the accounting department was also responsible for preparing Enron’s audited financial statements.
• Executive activities
1. Describe the mechanisms that WorldCom’s management used to transfer profit from other time periods to inflate the current period.
3. How should WorldCom’s board of directors have prevented the manipulations that management used?
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?
5. Why would a board of directors approve giving its Chair and CEO loans of over $408 million?