(a) In the Enron case the company eventually turned to “back-door”  guaranteeing of the SPE’s debt to satisfy equity investors. Explain why such an action negated the transfer of economic risk requirement to keep the SPE off Enron’s books.

By guaranteeing the SPE’s debt, Enron was still at risk for the assets and liabilities transferred to the SPE. At a minimum, the situation should have been fully disclosed in the financial statements. When the price of Enron stock fell so low that banks had to request additional stock or cash from the SPE, Enron had the realization that the SPE debt was really Enron’s debt.