Sherron Watkin's Letter to Ken Lay About Enron and Its Accounting Issues

2021-07-01 21:46:12
3 pages
599 words
Carnegie Mellon University
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Literature review
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Sherron wrote a letter to Ken Lay to express her concern about Enron and its accounting issues. She exclaimed that the expectations of people to get rich for working for Enron company were overturned by the abrupt departure of Skilling which raised suspicion in the accounting valuation issues and appropriateness. Previously, Watkin explained that Enron was the most aggressive in its accounting systems which were more connected to the Condor vehicle and the accounting transactions. The problem of Enron is about valuation issues with some of EES MTM international positions. The leaving of Skilling was an issue to the assessment questions in the Enron company since the valuation issues that was affecting the company was to be handled by Skilling. The worries were how to fix the Condor and Raptor deals that were expected to be wind up in 2002 and 2003 under the supervision of Skilling (McClendon, 2009).

The company enjoyed a high stock price which enhanced deals for the investors who were hurt after some time. The investors bought shares at $70, $80 and $120 and the returns were as little as $38 and less. The accounting was in trouble due to the financial crisis that was experienced. The accounting department had to enhance the capital structure which was connected to the Raptor vehicles which was committed to an improved share of ENE. The situation at Enron company called for a review of then accounting law and security fields (McClendon, 2009). The accounting was not consistent in its propriety which was the cause of concern. The inherent conflicts of LJM made accountants complain to Skilling and offered him some five steps for which he was to take for him to remain in his position as the treasurer.

After Sherron had blown the whistle of the happening in Enron company, strategies were made to curb the problem which entailed a review of the problems, an insight into the resignation of Skilling who was the key person for the success of the company and a series of steps to save the company was outlined. The following steps were taken to place the accounting program of Enron into its right perspective:

(i) The stakeholders contributed a contingent equity to the Raptor entities to make a consideration of the shares in the company that was entirely made dilute by the computations of the outstanding shares. The high moves were made to imply that Enron was to issue its shares in the future which was to make an impact to 2002-2004 projections of EPS.

(ii) Since Enron lost over $500 million of its value in 2002, it booked gains from the price risk management with Raptor which later recorded a corresponding a receivable PRM account from the Raptor entities which summed to up to $500 million party transaction. The related party transactions were about 20% of the 2000 BIT, 33% of NI which was after tax and 51% of NI before tax.

(iii) Enron company had to review its credit facilities due to the underlying capitalization which is connected to Raptor. There was a need to review the contingent shares and also determine the need for Raptor shares which had to have enough capital base that was to compensate Enron for it's $500 million that had to expire (McClendon, 2009).

(iv) Since the accounting committee stipulated that the Raptor had technically become bankrupt, the value of the contingent shares dropped down below the PRM account by which Raptor owed the Enron company. The company was to work on the $500 million loss that it was experiencing.



McClendon, J. K. (2009). Pension Reform in the Aftermath of Enron: Congress' Failure to Deliver the Promise of Secure Retirement 401 (K) Plan Participants.


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