Enron: Fraud, Deception, and the Aftermath (Course Id 212)

Accounting - Accounting for Course Id 212

This course satisfies the CA Boards 8 hour fraud requirement in 87(d) of the CBA Regulations which states: Licensees who are subject to the accounting and auditing (A&A) or government CE requirement will need to complete an additional eight hours of fraud CE specifically related to the detection and/or reporting of fraud in financial statements.

NASBA Registry - 212

Secion II
Accounting Issues

� Outline the GAAP rules that existed at the time of Enron, as they relate to investments, special purpose entities (SPEs) and consolidations;
� Compare and contrast the three tiers of ownership of outstanding voting stock and their accounting treatment;
� Categorize the three types of securities and the accounting treatment within the categories under FASB No. 115;
� Identify when the equity method should be used;
� Name the general rule for consolidation under ARB 51;
� Explain the SEC�s position on consolidation;
� List the factors that the registrant should consider in determining the most meaningful presentation in deciding upon consolidation policy;
� Provide examples of when to use combined financial statements;
� Delineate the basic rules that must be followed when presenting combined financial statements;
� Name the exceptions to the more than 50% ownership test of ARB No. 51;
� Define the term �special purpose entity�;
� Trace the steps that were usually taken by an SPE;
� Name the advantages of using SPEs under the previous rules in effect during Enron;
� Describe the three general criteria for non-consolidation;
� Summarize the special rules for SPEs involved in leasing transactions;
� Explain the rules for SPEs when there was a transfer of financial assets and liabilities;
� Identify the rule for balance sheet classification of notes receivable in connection with the issuance of equity and paid-in capital; and
� Name the rule regarding companies recording income and gains on their own stock.

Secion III
Enron and GAAP Violations

� Trace the development of Enron�s mishandling of SPEs;
� Explain the various way that Enron violated the three non-consolidation criteria for SPEs;
� Draw and outline the basic structures of Enron�s SPEs;
� Delineate the events of each phase of the first Enron SPE, JEDI and Chewco Investments L.P.;
� Name the GAAP violations that occurred during each phase of JEDI-Chewco;
� Explain the outcomes of JEDI-Chewco and its GAAP violations;
� Recognize the other GAAP issues related to Chewco and JEDI;
� List the events of each phase of the LJM1 partnership;
� Recognize the GAAP violations that occurred during each phase of LJM1 and Swap Sub;
� Name the events of each phase of LJM2 and the Raptors;
� Identify the GAAP violations that occurred during each phase of LJM2 and the Raptors;
� Explain how the LJM partnerships mishandled other transactions;
� Delineate how several employees were personally enriched at the expense of Enron;
� Identify the restatements that Enron made in November 2001;
� Trace the demise of Enron following the announcement of the restatements;
� Illustrate Enron�s disclosure deficiencies;
� Describe the existing GAAP requirements for related party transactions;

o Delineate the general rules for disclosing related party transactions;
o Name the SEC rules for related party transactions; and

� Discern whether or not Enron satisfied the GAAP and SEC disclosure requirements;

Secion IV
Enron�s Board of Directors and Audit Committee

� Summarize the background for boards of directors and audit committees;

o State some obvious symptoms that existed in companies that committed fraud;
o Describe the SEC�s rules related to audit committees provided in Audit Committee Disclosure;
o Identify the changes that were made to Audit Committee Disclosure;

� Determine whether Enron�s board of directors was independent of management;
� Explain the breakdown in internal control;
� Identify the specific roles of Enron�s board of directors;
� Delineate the specific roles of Enron�s audit and compliance committee;
� List the specific roles of members of Enron�s senior management; and
� Explain the specific roles of Arthur Anderson.

Secion V
Auditing, Independence and Conflicts of Interest

� Differentiate between the authority provided for fraud and illegal acts;
� Explain how Enron�s audits identified some signs of fraud;
� Name the problems that were associated with independence and conflicts of interest between Anderson, Enron and the Big Five;
� Recognize what portion of the Big Five�s revenue was derived from non-audit services;
� Discern whether there is any correlation between the receipt of large consulting fees and the quality of the audit;
� Trace the SEC�s attempt to change the independence rules;
� Provide examples of the problems with conflicts of interest among the financial analysts community; and
� Outline the new rules that the Sarbanes-Oxley Act requires of analysts and investment bankers.

Secion VI
Changes After Enron

� Categorize the major changes that have been made and will be made as a direct result of Enron;
� Outline the changes that Harvey Pitt made to Congress;
� Explain the general changes that the Sarbanes-Oxley Act of 2002 made;
� Provide details about the makeup of the Public Company Accounting Oversight Board (PCAOB);
� Identify how the Sarbanes-Oxley Act affects SEC auditors;
� Recognize how the Sarbanes-Oxley Act changes the conflicts of interest and auditor independence rules;
� Describe how the Sarbanes-Oxley Act affects boards of directors and audit committees;
� Illustrate how the Sarbanes-Oxley Act affects corporate officers;
� List the new corporate disclosures required by the Sarbanes-Oxley Act;
� Determine the punishments for various violations;
� Explain the revised rules for investment bankers and analysts;
� Recognize other provisions of the Sarbanes-Oxley Act;
� Illustrate the trickle down effect of the Sarbanes-Oxley Act;
� Identify results of the GAO�s Mandated Study on Consolidation and Competition in the Accounting Profession;
� List the recommended changes for FASB;
� Explicate Enron�s impact on a principles-based accounting system;
� Compare a rules-based system of accounting to a principles-based accounting system;
� List advantages and disadvantages of both a rules-based system and a principles-based system;
� Explain Enron�s impact on the change in the SPE rules (i.e., FASB Interpretation No. 46R);
� Define a �variable interest entity�;
� Categorize and describe off-balance sheet entities;
� Apply and explain the rules of FASB Interpretation No. 46R;
� Name the three basic rules for consolidation;

o Determine whether there is a variable interest entity;
o Establish whether an entity or individual has variable interests in the VIE;
o Resolve the issue of the primary beneficiary;

� Define the term �variable interest�;
� Provide examples of variable interests;
� Define the term �primary beneficiary:�
� Follow the rules to determine who the primary beneficiary of the VIE is;
� Outline the related-party rules for primary beneficiaries;
� Explain the operating lease issue;
� Follow the rules for initial testing and measuring of the VIE by the primary beneficiary;
� Recognize the effective date and transition requirements of Interpretation No. 46R for public entities and non-public entities;
� Describe the ongoing changes being made in Congress to pensions and 401(k) plans;
� List reasons why individuals would choose to not serve as a board member or on a company�s audit committee;
� Illustrate the new post-Sarbanes environment for directors;
� Provide examples of possible claims against directors and officers;
� Explain the issue of D&O insurance;
� List the three areas of D&O insurance coverage;
� Recognize the effect of higher malpractice insurance rates and higher audit fees;
� Identify how the cost of section 404 of Sarbanes-Oxley compliance is exceeding estimates;
� Outline reasons why European companies are delisting from the U.S. exchanges and why smaller companies are going private; and
� Explain the effect that the Enron scandal has had on the accounting profession.