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

departments, knew about the excessive use of such entities and knew that no clear business
justification existed for many of them. Other risk factors included:
Risk factors relating to management's characteristics and influence over the
control environment.
– Management failing to correct known reportable conditions on a timely basis.
– Management setting unduly aggressive financial targets and expectations for
operating personnel.
– A significant portion of management's compensation represented by bonuses,
stock options, or other incentives, the value of which is contingent upon the
entity achieving unduly aggressive targets for operating results, financial
position, or cash flow.
– An excessive interest by management in maintaining or increasing the entity's
stock price or earnings trend through the use of unusually aggressive
accounting practices.
– A practice by management of committing to analysts, creditors, and other
third parties to achieve what appear to be unduly aggressive or clearly
unrealistic forecasts.
AU §316.17(a).
923. Andersen knew that Enron management had not only an "excessive interest" but a
highly unusual interest in maintaining the Company's stock price. In fact, Enron was recognizing,
with Andersen's knowledge, income from the inflation of its own stock price. Enron's hedges were
dependent on maintaining its stock price. Insider trading proceeds were a huge part of management's
income. In addition, Enron executives received multi-millions of dollars in bonuses from hitting a
series of stock-price targets based on a program known as the "Performance Unit Plan." Highly
"aggressive targets" were the definition of Enron's business and management practices. Andersen
knew that Enron had failed to make some $51 million in proposed audit adjustments in 97 as alleged
at 517. Other risk factors included:
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