Read the case and answer the following :

a$)$ What were the impact of Enron's scandal to the financial world?

b$)$ Discuss Sherron Watkins's role in Enron scandal.

Enron$$s original natural gas business, the accounting had been fairly straightforward in each time

period, the company listed actual costs of supplying the gas and actual revenues received from

selling it$.$ However, when skillingjoined the company, he demanded that the trading business adopt

mark$-$ to $-$market accounting, citing that it wouldreflect $$true economic value$.$ Enron became the first

non$-$financial company to use the method to account for itscomplex long$-$ term contracts.

Mark$-$to$-$market accounting requires that once a long$-$term contract was signed, income be estimated

as the present value of net future cash flows. Often, the viability of these contracts and their related

costs were difficult to judge.Due to large discrepancies of attempting to match profits and cash,

investors were typically given false or misleading reports. While using the method, income from

projects could be recorded, which increased financial earnings.

However, in future years, the profits could not be included, so new and additional income had to be

included from more projects to develop additional growth to appease investors. However, Enron later

expanded its use to other areas in company to help it meet Wall Street projections.

Here are some detailed frauds in the Enron$$s financial statement:

Enron$$s auditor applied reckless standards in their audit, which was showing conflict between

interests. Enron financial statement showed the booking costs of cancelled projects as assets, with

the rationale that to no official letter had stated that the project was cancelled. This method was

known as $$the snowball$,$ and although it was initially dictated that stay under $$90$ million, it was later

extended to $$200$ million where all found $$strange transactions$.$ Like $$erratic cash flow$$ and huge

debt.

Enron was estimated to have about $$23$billion in liabilities, both debt outstanding and guaranteed

loans. Citigroup and JP Morgan Chase in particular appeared to have significant amounts to lose with

Enron$$s fall. Additionally,many of Enron$$s major assets were pledged to lenders in order to secured

loans, throwing into doubt what if anything unsecured creditors and eventually stockholders might

receive in bankruptcy proceedings. The collapse of Enron, the largest bankruptcy in U$.$S history,

which led to thousands of employees losing their jobs

and their life saving plans tied to the company$$s stock, which was calculated as $401($k$).$

Reputation of Andersen,

Enron$$s auditing firm, is damaged after company official admitted that thousands of Enron documents

were destroyed. Those events lead to flurry of probes, including a criminal investigation by the U$.$S

justice department of Enron. The SEC and the Labor department $$ as well as six congressional

committees$-$is also investigating the company$$s collapse. Enron officials have donated millions of

dollars to Republicans and Democrats alike.