«Cooker jar’ reserves» concept
The ‘cooker jar reserves’ was a strategic technique that was used by Enron’s management to save what they had earned from a ‘rainy day’ using the means of storing extra earnings in reserves. The term ‘reserves from the cookie jar may also refer to a firm’s aggressive assumption of estimate depreciation of equipment and plants owned by the company. Again, allocation of loan losses, at the time of accounting, are subjects of cookie jar used especially when there are hard times in the market or economy.
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The rate of some of the cookie jar strategic reserves, as per Enron’s case study, might not necessarily be genuine since they lacked transparency. On many occasions, the management refused to avail the books of accounts to any deemed far stakeholders, not to mention the journalists. Instead, they argued for the increased share prices due to strategic management, for example, the utilization of the internet in their operation.
Lack of transparency came to light when the company became bankrupt and most notably when there was an overestimation of the financial statements. However, Enron seemed to have shifted the focus from this strategy and recognized premature earnings. Ultimately, this led to its increase in share capital and a sudden fall into bankruptcy in the year 2001. It is worthwhile to note that transparency in undertaking cookie jar strategies is ethical.
On-time charges on financial statements are difficult to recognize. As such, the particular revenues management techniques lower revenues in the present period and eliminate future expenses from the statement of financial position making it possible to look printable very high profits.
Stakeholders of the case and their effects
The environment around has always influenced a business. They coexist together. As such, California was a stakeholder to the company in context as it was the first state to deregulate energy prices that fell as an important aspect of Enron’s operation. This corresponds to the fundamental effect of the Enron business in California.
The effect of the company comes in as California deregulates the energy prices meant that consumers might receive energy at low prices. The deregulation of the energy industry, as undertaken by California, made rates to go down in the short run before skyrocketing into higher value than ever before. California had undertaken steps in the wholesale of the energy prices which were overlaid on the retail side.
As such, the deregulation prevented its utility organizations from signing long term fix utility contracts. Thus, hindering the companies from transferring increased costs of operation and production to the final customer inform of increased prices. It is worthwhile to note that the wholesale electricity prices escalated higher than anticipated since Enron and its affiliates undertook trades with each other. As such, they involved the transfer of prices and inflated wholesale price of energy in California.
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The employees of Enron were highly affected by the pronouncement of bankruptcy and thus, over half of the number lost their jobs. Again, high ranking employees in the organization were tarnished their reputation due to the unethical conduct of the organization. In particular, Baker allegedly committed suicide following his resignation and threat of further probe on the issue of bankruptcy. This culminated in shock, loss of life, job, and reputations. Nevertheless, employees at Enron also felt the impact of the lack of integrity from the company executive management. Their employment and retirement pensions disintegrated into an endless speech.
Notwithstanding, Enron trading schemes raised the alarm that caused other energy companies to be subjected to a thorough probe of SEC and FERC. This condition left the competitor firms in the struggle to win reputation, credibility, and integrity.
This was not only from the customer point of view but from the government policies and regulation of energy prices. Subsequently, it led to deregulations on the prices of electricity which translated into reduced profits of popular energy companies subjected to SEC and FERC investigation. On the other hand, not all firms in the western part or across the country took part in Enron’s unethical trading schemes. As such, the affected companies experienced severe damages.
The shareholders experienced the worst business fluctuations in their share prices. They had the highest prices of shares at the beginning, $80 of which it surpassed other competing energy firms in the industry. The shareholders experienced a sudden decline in share prices when the company was suddenly declared bankrupt in the year 2000, on announcement and declaration that Enrons was bankrupt the share prices dropped to $15. However, subsequent investigation and liquidation left the company shareholders with 1e price per share. Eventually, the company could not be repossessed since other debts had not been disclosed. This left the shareholders in a worse position than they started their investments.
The customers experienced increased prices irrespective of California’s deregulation. The situation left customers in a position where much of their disposable income was used on electricity. This left the customers in a worse position.
Main points of the case
Enron Company undertook its business in the energy industry as one of the firms offering energy products and services to the market. However, it is deemed that the company had much greed for wealth which pushed the company to a position of being opportunistic and undertake unethical business schemes. As such, the company could collude with its affiliates to carry on business with a desire to outdo the market.
The quest for dominance by the company left its share prices and undertaking accounting procedures prices overestimated, without considering the generally accepted accounting principles. In this effect, the cookie jar, unacceptably used by Enron, justifies its fate. This was a strategic technique to make it possible for Enron’s management to save what they had earned for a ‘rainy day’ through means of storing extra earnings in reserves. The reserves from the cookie jar may also come about a firm’s aggressive assumption of estimate depreciation of equipment and plants owned by the company.
The ultimate effect was the bank’s benefit, for it benefitted from the Bankruptcy of the company. However, its stakeholders were left in a worse position. The company had the worst impact on its stakeholders, including the surrounding environment in California, the customers, employees, competitors, and shareholders. The worst impacted were the employees on account of Barker’s death and loss of employment by the employees. Notwithstanding, customer credibility, and choice energy firm was tarnished.