Question

Enron: The Smartest Guys in the Room.

What is Mark to market accounting? As a 4^th year business student do you think the concept is sensible?

What new financial markets did Enron create?

What individuals stood apart from Enron management and questioned “Is this right?”?

Did the executives of Enron “steal” their employees’ retirement monies?

As of 2 where017 are Bethany McLean, Cliff Baxter, Andrew Fastow, Jeff Skilling, Sherron Watkins, Lou Pai and Kenneth Lay now?

In your opinion what was the one most outrageous thing that Enron did?

Answer 1

Mark to market Accounting

Mark to market (MTM) is a measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark to market aims to provide a realistic appraisal of an institution's or company's current financial situation.

In trading and investing, certain securities, such as futures and mutual funds, are also marked to market to show the current market value of these investments.

Mark to market is an accounting practice that involves recording the value of an asset to reflect its current market levels. At the end of the fiscal year, a company's annual financial statements must reflect the current market value of its accounts. For example, companies in the financial services industry may need to make adjustments to the assets account in the event that some borrowers default on their loans during the year. When these loans have been marked as bad debt, companies need to mark down their assets to the fair value. Also, a company that offers discounts to its customers in order to collect quickly on its accounts receivables will have to mark its current assets account to a lower value. Another good example of marking to market can be seen when a company issues bonds to lenders and investors. When interest rates rise, the bonds must be marked down since the lower coupon rates translate into a reduction in bond prices.

Problems can arise when the market-based measurement does not accurately reflect the underlying asset's true value. This can occur when a company is forced to calculate the selling price of its assets or liabilities during unfavorable or volatile times, as during a financial crisis. For example, if liquidity is low or investors are fearful, the current selling price of a bank's assets could be much lower than the actual value. The result would be a lower shareholders' equity.