1. Enron, an international energy company, faced a lot of business risks because of the industry they were in. Enron’s business model, an intermediary between buyers and sellers of energy and profiting off the price differences, was risky in itself because it exposed Enron to energy prices risks as well a fluctuating foreign currency.
While continuing to expand their business, Enron began offering a variety of financial hedges and contracts to their customers. This new venture uncovered interest rate risks, environmental risks, and constant price wars. Enron Online launched in 1999, which revealed dangerous technological failure risks.
Enron decided to use Special Purpose Entities for borrowed funds. These SPEs were a great risk because the likelihood of materially misstating their financial statements increased significantly due to liabilities not being reported as cash inflows were coming in. These SPEs, as well as many other business endeavors by Enron, relied heavily on their guarantees of stock. If stock prices were to fall under a certain level, obligations made by Enron would become payable (Seabury).
Once Enron’s risks were realized the company experienced pressure to report more stable and prosperous financial statements. They wanted to continue attracting investors and increase their competiveness in the marketplace, which drove management to enter into aggressive accounting schemes that ultimately led to their downfall in 2001.

2. The case explains how Enron used SPEs to sell off assets, which removed their related losses and liabilities from the company’s balance sheet. Listed below are the three SPEs mentioned in the case and how Enron used them to report better financial statements.
Chewco was established by Enron executives in connection with JEDI, another Enron partnership, to hide the losses without having to consolidate JEDI to their