How did analysts uncover problems in Enron’s financial statements during 2001?

During 2001, the severity of Enron’s financial situation became apparent as a number of analysts began to dig into the details of the company’s publicly released financial statements.1

These investigations were prompted by concerns regarding the company's use of special purpose entities (SPEs) and other dubious accounting practices, such as "mark-to-market accounting," which were used to hide losses and inflate profits. Additionally, an internal warning was raised by Sherron Watkins, an Enron vice president, who sent an anonymous memo to chairman Kenneth Lay expressing concern about the partnerships managed by chief financial officer Andrew Fastow.1

As analysts scrutinized the financial data, the company was eventually forced to announce a massive third-quarter loss and a significant reduction in shareholder equity, which triggered an investigation by the Securities and Exchange Commission and led to the company's eventual bankruptcy.1