In the Enron case the company eventually turned to “back-door” guaranteeing of the Chewco, one of its SPE, to satisfy equity investors. Assume that one guarantee was for a $16 million loan. The loan agreement required that Enron stock should not fall below $40 per share. If the share price did decline below that trigger amount, either the loan would be called by the bank or the bank could choose to increase the guaranteed number of Enron shares based on the new price (assume $32). If the bank decides to increase the number of shares guaranteed, what would be: (1) the original number of shares in the guarantee and (2) the new number of shares? Why would it be important for Enron to disclose information about the guarantee in its financial statements?
Answer to relevant QuestionsOn August 9, 2005, a special committee comprised of two independent directors of Krisp Kreme (the “Special Committee”) presented a report of its investigation into an accounting fraud to the board of directors.The ...1. Auditors are required to assess fraud risks as part of their ethical and professional responsibilities. What characteristics of Nortel might have caused it to be identified as a high-risk audit? Use the fraud triangle in ...1. One of the red flags identified in the case was that operating cash flow increases did not seem to match the level of increase in net income. Explain the relationship between these two measures and why it raised questions ...Do you believe that “one size fits all” with respect to corporate governance provisions in different countries around the world? Why or why not? How do legal and cultural factors influence corporate governance provisions ...IFRS for SMEs has been referred to as “IFRS lite.” One of the differences between full IFRS and IFRS for SMEs is that full IFRS allows for judgment in making choices about proper accounting, whereas IFRS for SMEs is much ...
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