ASSIGNMENT NO 1

Submitted by
SP18-BAF-018
Question No 1:
There are two types of categories of assets called tangible and intangible assets. Tangible
assets are typically physical assets or property owned by a company, such as computer
equipment. Tangible assets are the main type of assets that companies use to produce their
product and service. Intangible assets don't physically exist, yet are they have a monetary value
since they represent potential revenue. A type of an intangible asset could be a copyright to a
song. In this case gas pipeline is example of physical asset and weather derivative is example of
intangible asset.
A company with a high value in tangible assets can always be liquidated and turned into cash.
Businesses in higher-risk industries, such as banking and finance, use their tangible assets to
reassure investors. As long as the value of the company's tangible assets exceeds the amount it's
risking, it will remain secure. The more money you have, the more you can afford to risk.
Tangible assets form the backbone of a company's business by providing the means to which
companies produce their goods and services. Tangible assets can be damaged by naturally
occurring incidence since they are physical assets. Intangible assets are the non-physical assets
that add to a company's future value or worth and can be far more valuable than tangible assets.
Both of these types of assets are initially recorded on the balance sheet, which helps investors,
creditors, and banks assess the value of the company. Natural environmental events can cause
failures of physical assets and it only takes a minute for natural disasters such as flood,
hurricane and others to happen that will damage the physical assets and stop the business
process.
Moreover, physical assets such as buildings, structures, and engineering systems operate in a
dynamic environment where they are exposed to short, medium and long-term variability in
ambient environmental conditions and these weather and climate changes pose a particular risk
for assets and operators in all sectors. These risks have the potential to seriously affect the
availability and reliability of assets. However, no one pays attention to this unless the natural
disaster happens to them and affects their business or shuts the operations down. The companies
having substantial intangible are not affected by natural disaster.
Physical assets also have stakeholder risk, stakeholders related risks include the disconnections
at different levels of the organization, lack of participation from some key stakeholders and
unclear commitment from top management due to little corporate guidelines on reporting and
management of physical assets. Moreover, it is difficult to handle physical assets without
involving a specified person who has experience and competence in managing assets.
Business process can also effected by the improper maintenance of assets. Maintenance is often
viewed as a business expense open to cutting like any other in order to maximize profits. With
these pressures, maintenance departments are constantly struggling with how to balance the cost
with the performance requirements such as reliability and uptime.
Apart from them, the disposal of assets is an area where the risk of corruption is high. In most of
the organizations, there is the unavailability of disposal risk assessment to identify assets that
should be disposed of and any issues that should be considered during the disposal process. If the
disposal process is not supported by competent and professional advice and the use of accurate
and relevant information, this may result in an inadequate return on the disposal of buildings and
poor coordination of cash flow with capital investment requirements.
Moreover compared with intangible assets, the disadvantage of tangible assets is that they're non-
exclusive. Any company can possess the same tangible assets as any other. Tangible assets by
themselves do little to maintain your customer base.

Intangible assets provide a company with its identity. Though there is no definite way to value
intangible assets, they can be at least partially accounted for in financial terms. The amount a
company must spend to gain new customers should be reduced if it has an asset such as a strong
brand name. Intangible assets are most valuable for their ability to aid a company in its growth
and potential. Efficiently managing and accounting for the intangible assets is a form of
investment in the business as compared to developing a strong tangible asset base. The company
earns a significant premium as compared to the costs incurred in order to acquire, develop or
maintain them. Drawbacks and Benefits of Intangible assets. For example, for the tangible asset
the company would have to incur the buying / manufacturing cost, storage and maintenance cost,
depreciation expense, obsolescence costs etc. While no such costs are born by the company for
the intangible assets other than costs which the business has to incur in any case in order to
remain in the longer run in the race.

In a free market, a business needs to differentiate itself from its competition. To do so, it needs to
focus on what it does best particularly and what it possesses that no one else in its industry has.
Compared with intangible assets, the disadvantage of tangible assets is that they're non-
exclusive. Any company can possess the same tangible assets as any other. Tangible assets by
themselves do little to maintain your customer base. Intangible assets can significantly increase
the value of a company. The recognition is relatively a newer concept and requires significant
developments and rectifications. The management of the company may use creative accounting
and window dressing to fraudulently increase the value of the business and earn significant
premium on its disposal.

Intangible assets valuation is a complex process and needs core understanding of the various
methodologies, approaches and exercises. Often entrepreneurs and booming business don’t have
the skills, knowledge and resources to carry out these activities and need expert services from
and analyst or accountant. These experts may charge high fees that the company might not be
able to bear at the initial phases. The conclusion is both physical and intangible assets associated
with some risk so the firm should have both type of assets to diversify the risk.

Question No 2:

Such a big corporate profit making company fell off within a year because of major accounts and
financial problems. Just like a house of cards which falls by a light blow of air same way just a
whistle blower resulted in the fall of Enron, so the comparison is totally correct. Same way as in
train crash hardly anyone survives same way out here top management to all the companies
associated with Enron also suffered because of Enron. The notion of a ‘train crash’ gives the
sense of a situation in which Enron was out of control. Even though Kenneth Lay took back
control of Enron from Jeffrey Skilling in August 2001, it seems that events had progressed to the
point where it was not possible to slow down or even stop the process. refers to the members of
Enron’s audit committee watching an unfolding train wreck in slow motion. Given the
momentum of events, individuals, including Kenneth Lay, seemed powerless to prevent Enron’s
bankruptcy.

Question No 3:

If the shareholders known the fact about LJM partnership they never continued investing in
Enron. The reason is Fastow created special purpose vehicle just to cover their debts and present
them as sales to increase the profit and revenue. The LJM partnership agreements were devices
to give the appearance that legitimate sales were taking place when in fact the real purpose was
to provide loans to Enron. Enron’s profits were overstated and its debt was understated.

The circumstances related to the LJM partnership agreements is consistent with ‘semi-strong’
market efficiency since the relevant information was not publicly available. Finally, it might be
worth pointing out that there exist a number of ‘tracker funds’ which adopt a passive investment
strategy and aim to construct a portfolio of shares which is representative of the market as a
whole. The analysts and managers working for these funds would, in theory, not care about the
existence of off-balance sheet financial arrangements. On the other hand, active investors would
be more concerned about the implications of the LJM partnership agreements and, once the
information became available would be more likely to react to it by selling Enron’s shares.

Question No 4:

The concentration of power in Kenneth Lay’s hands was a disturbing development, although
presumably it was designed to be a short term solution to deal with Jeffrey Skilling’s departure in
August 2001. But the consequence was that it would have been even more difficult for any
independent judgment to be offered about how to resolve Enron’s problems. The main problem
was the lowest share price in the history and the CEO have no excuse and explanation. Moreover
the whistleblower Watkins sent the memo too to Lay (CEO) about the concerns and the problems
within Enron. The valuation issues related to the asset and with the acquiescence of Skilling's
there were serious bookkeeping issues also emerging in Enron.

Question No 5:

Employees were probably the most badly affected by the bankruptcy. First, many lost their jobs
and had to seek employment elsewhere. Second, many employees bought Enron stock which was
virtually worthless by the end of 2001. Third, it is likely that the pension entitlements of the
employees were also of little value.
Individual shareholders also effectively lost their investments if they were still holding shares at
the end of 2001. One could also extend the list of stakeholders to those who invested in pension
funds and other financial institutions which had investments in Enron.

Trade creditors also would have had to face up to losses on amounts owed. Finally, the banks
would have faced losses on amounts loaned to Enron. However, for the banks, some of the loans
were presumably secured on Enron’s assets. In addition, banks have tended to make increasing
use of financial derivatives in recent years by which they can offload risk on to other financial
institutions. So it is quite possible that the banks were least affected by the Enron collapse.

Question No 6:

If there should be an occurrence of Enron Sharron Watkins the informant made the gallant move
to take her interests to the top administration. They should report the concern affaire inside and
outside the association, in fact that corporate for the most part accept them as terrible individuals
attempting to hurt the interests of the organization. So, they should take lawful assistance and
help from media too to bring issues among individuals and investors about the issues of
corporate administration.

Question No 7:

The evidence seems to show that power was concentrated in the hands of Kenneth Lay and
Jeffrey Skilling. When Skilling departed in August 2001, Lay took over as CEO and president, as
well as continuing to be chairman, thus ensuring a further concentration of power. Moreover, it
appears that the non-executive directors were not effective in bringing independent judgement
into the decision making process. The independence of John Wakeham was questionable since
he had received consulting fees in relation to Enron’s European operations. John Mendelsohn
was president of a University of Texas medical centre which had received substantial funding
from Enron, so this fact could have compromised his independence. Three members of the audit
committee were located outside the US, and the chair of the audit committee was reported as
having sold Enron stock between January 2000 and October 2001 worth over $800,000. With
reference to the audit committee.

They were arranged at distant and far areas and didn't have the nerves to challenge the specialists
already. They were an excess of dependant on the administration and during the gatherings with
the executives they posed numerous inquiries and didn't try to challenge the choice taken by the
board. This prompted breakdown of Enron.