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ENRON: WHAT HAPPENED & THE IMPLICATIONS

The Accounting Issues

Live WebcastJanuary 25, 2002

Terry Iannaconi, KPMG

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Issues Identified in the November 8, 2001 Form 8-K Disclosing the

Restatement Non-Consolidated Special Purpose

Entities (SPE’s) Sale of Company Stock for Notes

Receivable Use of “Intercompany” Derivative

Instruments Related Party Transactions Disclosures Other Items: Prior Year Proposed

Audit Adjustments and Reclassifications

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Other Possible Issues

Fair Value Considerations for Certain Transactions

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Non-Consolidated SPE’s

EITF Topic No. D-14 Transactions Involving Special-Purpose Entities

EITF Issue No. 90-15 Impact of Nonsubstantive Lessors, Residual Value Guarantees, and Other Provisions in Leasing Transactions

Concept of “Substantive Capital Investment”

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Sale of Stock for Notes Receivable

SEC Staff Accounting Bulletin No. 40, Topic 4E, Receivables from Sale of Stock

EITF Issue No. 85-1, Classifying Notes Receivable for Capital Stock

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Effect of “Unwinding” Intercompany Derivative

Instruments as a Result of Consolidation Restatement

Statement of Financial Accounting Standard No. 80 Accounting for Futures Contracts

Statement of Financial Accounting Standard No. 133 Accounting for Derivative Instruments and Hedging Activities

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Disclosures of Related Party Transactions

Regulation S-X Rule 4-08(k) Generally Accepted Accounting

Principles- Statement of Financial Accounting

Standards No. 57 Related Party Disclosures

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Prior Year Proposed Audit Adjustments and Reclassifications

No information available concerning nature of Passed Audit Adjustments

Passed adjustment for 1997 approximated 50% of reported net income for the year

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Other Possible Issues: Fair Value Considerations

Determination of Fair Value for Transactions Among Non-Consolidated Related Parties

- Terms available to clearly independent third parties vs. transactions with persons or entities that are able to negotiate transactions on terms that would not be available from clearly independent third parties

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Q&A - Open Discussion

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