Now, I know that for most, Enron encompasses all that is evil in the corporate world. But this is misleading:

Enron tried to do an end-run around accounting rules by dropping a plan to sell assets in a failed water business for a $1 billion growth strategy, instead, a former accountant who handled the company’s books said on Monday.

An end-run around accounting rules? Those evil, evil folks. What they did:

An accounting rule that took effect in January 2002 would have required Enron to book losses of $700 million or more.

That was the difference between the inflated value of Wessex, Enron’s British water utility, and its true value. Had Enron maintained its plan to sell Wessex and other Azurix assets, the new accounting rule would have forced the energy company to reconcile the book values with true fair market values.

Management realized that by selling the entity, they would have realized a huge loss. However, if they kept it, no loss would be incurred. There was nothing nefarious that I could see in this particular case.

Also interesting to me were these two tidbits:

The charges against Lay, Enron’s founder, include an allegation that he lied to outside auditors in October 2001 by claiming Enron planned to invest in Wessex rather than sell it so the energy company could avoid the writedown. Lay told analysts in a late October 2003 conference call — a few weeks before the company sought bankruptcy protection — that Andersen had examined the issue and determined no writedown was necessary.

Both men say there was no fraud at Enron and negative publicity coupled with diminished market confidence fueled the company’s swift descent into bankruptcy protection in December 2001.

It looks increasingly like Andersen was not as involved in this as folks thought. In fact, I’d say they were lied to and if you lie to your auditors about some complex transactions, they’ll never know otherwise unless they find stuff by sheer luck. Does make it appear that Andersen was sort of a victim here. And they fell hard because of this.

Posted in uncategorized on March 21st, 2006 by SayUncle | RSS 2.0 |