Enron Corp. - University of California | Office of The President

10% of the contract value as revenue at signing before any work had been completed was in direct
violation of GAAP.
I. Enron's Improper Snowballing of Costs on Unsuccessful Bids
580. During 97 and 98, Enron improperly capitalized, rather than expensed, costs
associated with unsuccessful bids for projects. The project bid costs were then improperly included
in bid costs for future projects. These capitalized costs were ultimately written off in the 1stQ 99,
but to cloak the true nature of the writedown, the writedown was attributed to a "change in
accounting."
581. Enron International repeatedly deferred capital expenditures, including developer,
financing, and promotional fees, that were incurred on failed project proposals. Former directors and
vice presidents watched for more than five years – between 93 and 97 – while these deferred
expenses were accumulated – a practice known company-wide by accounting and finance personnel
as "snowballing" – and very few write-offs were taken. Costs for South African projects involving
oil and gas reserves, pipelines, and a plant designed to convert ore into another form of energy, and
projects in China, among others, were snowballed quickly– the cash burn rate was as much as one
million dollars a month. Quarter after quarter, year after year, Enron International "got pressure
from corporate about meeting earnings," which made even a hint about write-downs – even when
it was clear that the proposed project would never go forward – very unpopular at the end of a
reporting period. Consequently, the snowball grew exponentially – so large that an international
accounting officer told Enron CAO Causey that a writedown had to be taken because so many
proposals were no longer even arguably viable. But this appropriate assessment ran counter to
corporate directives by Causey, who, at Skilling's direction, routinely responded that "corporate
didn't have room" to take a writedown – reduce the snowball – because doing so would bring Enron's
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