...Research Study INTRODUCTION Accounting scandals in business firms arise with the disclosure of financial misdeeds by trusted executives of corporations. Examples of Accounting Fraud: • Merging short and long term debt into one amount to improve the perceived liquidity of the company • Failing to disclose risky investments or “creative” accounting practices • Over-recording sales revenue • Under-recording expenses (i.e. depreciation expense) Accounting fraud leads to many serious problem for everyone not only for the perpetrator. Accounting fraud causes problem in the market place and the economy. As a result in most cases, investors' loose large sum of money due to the misrepresentation of financial position and financial result of the company. Also, because of this, there is lack of trust in the market, accounting system, and in the company in which accounting fraud was committed from the investors. Employees in that company are at rest of losing their job because of the scandal. WHY DOES ACCOUNTING FRAUD OCCUR? Fraud are triggered by three elements; rationalization, perceived pressure, and perceived opportunities. Whether the fraud benefits the perpetrator directly, or indirectly, such as benefiting the perpetrator’s company, the three elements are always present. Rationalization- perpetrators find some sort of rationalization that makes their unethical behavior seem acceptable. Perceived Pressure- perpetrators are faced with some kind of pressure...
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...Baluyot, Krishia Mae E. BSAV-2A Scandals that Rocked the Accounting World ❖ Enron Scandal The Enron Corporation led to bankruptcy Last October 2001. It is an American energy company based in Huston, Texas, and the termination of Arthur Andersen, which was one of the biggest audit and accountancy partnerships in the world. Enron is also attributed as the biggest audit failure. Enron was founded in 1985 by Kenneth Lay after merging Houston Natural Gas and Inter North several years later. When Jeffrey Skilling was hired, he developed a staff of executive that, with the use of accounting loopholes special purpose entries, and poor financing reporting, were able to hide billions in debt from failed deals and projects. Shareholders lost nearly $11 billion when Enron's stock price, which hit a high of US$90 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a fire sale price. The deal fell through, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron's $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom's bankruptcy the following year. Many executives at Enron were indicted for a variety of charges and were later sentenced to prison. Enron's auditor, Arthur Andersen, was found guilty...
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...History Satyam Computer services Limited an Information Technology Company was founded in 1987 by Ramalinga Raju. The company is based in Hyderabad, India and was the fourth largest software exporter in India until January 2009. As one of the largest software company, Satyam traded in the Bombay Stock Exchange, the national Stock Exchange and New York Exchange. Satyam grew rapidly with customers stretching over 66 countries and was ranked at 185th on the Fortune 500 companies list. In 2008, Satyam received the the Global Peacock Award for global excellence in corporate accountability. Satyam continued to grow even when stock markets around the world were collapsing. In December 2008, Mr. Raju wanted to merge Matyas a real-estate company with Satyam. Matyas a company owned by his family was a complete diversity from the software company. Raju and his family owned a lot more shares in Matyas than they did in Satyam. The merge caused investors to question Mr. Raju’s intentions. The stockholders objected to the merge and the idea was aborted. However, the damage had already been done. The investors had lost faith and Satyam’s stocks plunged to an unbelievable low. Ironically, the word Satyam means Truth in Sanskrit and as the world watched the truth about Raju started to unravel. Fraud is Uncovered In October of 2008, World Bank fired Satyam and restrictions were put in place against the company from bidding for eight years. World Bank alleged that that Satyam had placed spy...
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...Unraveling the Details of 10 High-Profile Accounting Scandals written by: ciel s cantoria • edited by: Linda Richter • updated: 12/30/2010 Before digging into the dirty details of each of these major accounting scandals, we’ll take a look at some of the tools that were used to first detect them – including sophisticated accounting systems and advancements in high-tech communication. Technology Fighting Against White Collar Fraud Looking back at the 10 major accounting scandals that changed the business world, it was noted that most of their unraveling came about during the turn of the new millennium, which was a time when the American trade and industries were beginning to experience the benefits and detriments of high-tech computerization. Information storage and communication became sophisticated, which made possible the compilation of hordes of information in an instant. Recording and verification of accounting transactions in realtime were made easier and more accurate, which facilitated the reconciliation of supporting documents versus sources, with very little effort needed. Federal regulators were provided with data that revealed the corrupt practices of high-profile companies and their CEOs. Their bankruptcies became inevitable as the Securities and Exchange Commission (SEC) and financial analysts began to see the signs of irregularities among numerous companies. When the SEC ordered the restatement of their financial reports in accordance with the GAAP rules, it...
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...leading outsourcing company in India. The company grew quickly during the 1990s and 2000s as more and more companies around the world looked to India for outsourcing solutions. It eventually became the fourth largest outsourcing company in India. Satyam provides solutions to approximately 185 Fortune 500 companies throughout the world. The business community recognized Satyam as a global leader in information technology outsourcing. Satyam was as an example of India's growing success. It won numerous awards for innovation, governance, and corporate accountability. Unfortunately, less than five months after winning the Global Peacock Award which is a World Council for Corporate Governance, Satyam became the centerpiece of a massive accounting fraud. As stock markets around the world collapsed during 2008, the Indian Stock Exchange fell enormously. The enormous losses caused investors to withdraw large amounts of cash from their investments. These cash withdrawals in turn triggered the discovery of several cases of financial fraud as perpetrators could no longer hide the results. Mr. Raju, the founder of Satyam, and the company's global head of internal audit used a number of different techniques to perpetrate the fraud. He created numerous bank statements to advance the fraud and falsified the bank accounts to inflate the balance sheet with cash balances that never existed. He also inflated the income statement by claiming interest income from these fake bank accounts...
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...Running Head: Is Ethics The Main Reason For Accounting Scandals? Is Ethics The Most Important Reason Behind Years of Accounting Scandals? Joshua A. Williams DeVry University Is Ethics The Main Reason For Accounting Scandals? Ethics: Is It The Most Important Reason Behind Years of Accounting Scandals? Ethics is a term that refers to a code or moral system that provides criteria for evaluating right and wrong (Spiceland, Spe, Tomassini, 2007). An ethical dilemma is a situation in which an individual or group is faced with a decision that tests this code. Many of these dilemmas are simple to recognize and resolve. For example, have you ever been tempted to call your professor and ask for an extension on the due date of an assignment by claiming a fictitious illness? Temptation like this will test your personal ethics. The direct issues when dealing with ethics is that it cannot be measured or quantified it is intangible almost to a fault. A person’s ethical background can be affected by all types of outside forces such as familial background, financial status, and educational backgrounds as well to name a few. Ethical codes are informative and helpful. However, the motivation to behave ethically must come from within oneself and not just from the fear of penalties for violating professional codes (Spiceland, Sepe, Tomassini, 2007). There is specific analytical model which gives a sequence of seven steps that provide a framework for analyzing ethical issues. These...
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...Nortel Accounting Scandal History Nortel Networks Corporation, formerly known as Northern Telecom Limited and sometimes known simply as Nortel, was a multinational telecommunications and data networking equipment manufacturer headquartered in Mississauga, Ontario, Canada. It was founded in Montreal, Quebec in 1895. At its height, Nortel accounted for more than a third of the total valuation of all the companies listed on the Toronto Stock Exchange (TSX), employing 94,500 worldwide, with 25,900 in Canada alone. Products Nortel made telecommunications, computer network equipment and software. It served both general businesses and communications carriers (landline telephone, mobile phone, and cable TV carriers). Technologies included telephonic (voice) equipment, fiber optics, local wireless, and multimedia. Board Members * Jalynn H. Bennett (Corporate Director) * James Blanchard (ex-American Politician and Lawyer) * Frank Carlucci (Chairman Emeritus) * John Cleghorn (Director) * Frank Dunn (ex-CEO) * Yves Fortier (Director) * Kristina Johnson (Director) * John MacNaughton (Director) * John Manley (Director) * Richard McCormick (Director) * Claude Mongeau (Director) * William Owens (Admiral) * John Roth (ex-CEO) Profile of the Event In 2007 both the U.S. Securities and Exchange Commission (SEC) and the Ontario Securities Commission laid charges against former senior financial officials from Nortel including then-CEO Frank...
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...MANAGERIAL ACCOUNTING WORLDCOM How did it cook the books? Nguyen Bao Khanh Student ID: FB60162 Class: FB0662 May 19th, 2012 APENDIX 1. WorldCom’s accounting scandal 2. How did WORLDCOM cook its books? 3. Conclusion WORLDCOM headquarter in Virginia, USA. WORLDCOM’S ACCOUNTING SCANDAL WorldCom, established in 1983, whose CEO was Bernard Ebbers, was the second largest long distance phone company in the US after AT&T. It could be seen as a pride of America until it got into one of the biggest accounting scandals in the American history which finally led to its bankruptcy in 2002. On July 21st, 2012, WorldCom filed for bankruptcy, which was worth 103.9 billion USD and became the largest filing at its time. Its CEO, Bernard Ebbers, was found totally guilty and sentenced to 25-year imprisonment regarding the crime of stock and accounting fraud. Before WorldCom, the world had seen several cases of famous, or infamous, financial and accounting frauds, including Enron, Tyco, Aldelphia, Global Crossing and HealthSouth. Such cases, we can say, were quite complicated to trace, but WorldCom used a simple recipe to cook the book, which will be illustrated below. HOW DID WORLDCOM COOK ITS BOOKS? To understand the fraud occurring at WorldCom, we should basically understand the difference between operating and capital expenditures first, and then we would move on to the details on how the books were adjusted to cause problems. To begin with, what are operating and capital...
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...Accounting Scandals: Responsible Stewardship and Integrity AOL Time Warner 1. Summary of the events that led to the accounting scandal. AOL was the major face in the Internet scene for four years, between1994 to 1999, by using aggressive advertising contracts instead of charging subscription fees to their users. When internet advertising became more and more popular, AOL’s stock rose by an extremely large amount. Due to this tremendous response from investors, enhancing revenues in order to keep the stock prices favorable for AOL TW’s stockholders became the core objective of the AOL management and its employees (Cantoria). In 2000, a new company called AOL Time Warner was created when AOL purchased Time Warner for $164 billion. The deal announced on January 10, 2000 and officially filed on February 11, 2000, this merger in which each original company had a creative opportunity to merge into a newly created entity. Immediately before and after AOL’s merger with Time Warner, top executives at the internet company used tricks, contrivances and false transactions to inflate the value of AOL stock while liquidating their shares in a selling frenzy to enrich themselves to the tune of $936 million. 2. The financial accounting that was performed in the scandal. In 2001 and 2002, the company inflated its online advertising revenue by $400 million in connection with transactions with Bertelsmann. Bertelsmann paid $400 million as consideration for amendments to the multi-billion...
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...“Reneging on a Promise” Case Study 2 Hang Chi Leung CRN:10151 TTh 11:00-12:15PM PID: lhchi Promise, it is easy to say than keeping it. Most people will break a promise for at least one time. If one breaks the promise, it depends on the situation to determine whether it is right or wrong. However, breaking a promise is not a responsible thing to do. If a promise is broken, one should apologize sincerely and offer to make up for it. Although one can make up for breaking a promise, it may lead to a loss of trust and it takes time to regain. In this case, the stakeholders are Tick and Check LLP. and Foot and Balance LLP; they all want want to hire honest, hardworking, trustworthy, diligent and professional candidates. Billy Tushoes wants a job which he really likes and could work for. Billy’s friend wants to continue working at Foot and Balance. The community wants everyone to have a job so it can support the system for the workplace. Once Billy accepted the offer from Tick and Check LLP, he should have notified the other firms ethically. If Billy had done that, he would would not be given another offer form Foot and Balance LLP and this dilemma would not have occurred. If Billy does not like Tick and Check, he would not accept the offer. On the other hand, if Billy just wants to work for Foot and Balance, he should have waited for their offer. In this case, since Billy has already accepted the offer from Tick and Check, he should honestly explain the situation and apologize...
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...Enron and Arthur Andersen Accounting Scandal The Enron accounting scandal resulted in a loss of reputation to Arthur Andersen which was a result of fraudulent financial statement reporting. Crimes discovered included irregular accounting procedures which could be turned in as fraud which involved Enron and Arthur Andersen as its accounting firm. They were found to have committed wire fraud, security fraud, making false statements to banks, creating several “independent” companies, called “Special-Purpose Entities” (SPEs) and using them as a way to hide many bad and devalued assets to fool investors into believing Enron was financially healthy so Enron executives could pocket millions from sales of inflated stock. They created a company called LJM1 which purchased the provider’s stock at inflated prices and took them off the books at Enron. Later, when the price of the stock fell, Enron did not have the loss on its books. LJM allowed Enron to move money-losing assets off its balance sheet. LJM was also involved in complex hedging that was supposed to reduce the volatility of some of Enron's investments, including stakes in high-tech and telecom businesses. Arthur Andersen, Enron’s accountants, were accused to have allowed LJM1 to be isolated from Enron’s books, and go unnoticed. In the end, LJM1 was stuck with stock from the internet provider, which they purchased from Enron at inflated prices, and now were worth much less. Andy Fastow was the Enron executive who...
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...Olympus Accounting Fraud ACTG 6100 Professor Mark Jobe Feb. 18, 2014 Inhwa Kim M01243678 The Olympus has a pretty strong position in the camera market. This company is popular because they made the world’s first DSLR (Digital Single-Lens Reflex). Many camera users who are located in all around the world prefer the Olympus. Also, the Olympus is popular because the company made the medical devices, endoscope which is able to watch inside the organ of human body. The Olympus, which is one of the popular camera and medical devices companies, had been troubled due to a financial scandal. On August 2011, Michael Woodford, the formal president, was separated from the Olympus because of the difference in business line despite thirty years at the company. He expressed concern about possible inappropriate acquisitions and large payments to financial advisors with the chairman of Olympus and an executive vice president. He claimed that the Olympus paid an unusual fee abnormally while buying Gyrus, which is a maker of the British medical devices. After arguing this problem, he was dismissed on Oct 14, 2011. Also, in the same year, the Olympus spent about 687 million dollars as advisory fee to the Cayman Islands and another in New York. These two companies are unknown. Thomson Reuters reported that the fee of 687 million dollars, equal to 31 percent of the Gyrus acquisition price, was paid to a middle-man, whereas this is usually 1 or 2 percent. The Olympus...
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...Ethics in Management Accounting What are ethics? According to the Merriam-Webster dictionary, ethics are defined as, “Rules or behavior based on ideas about what is morally good and bad.” Ethics are rooted in an individual or an entire group’s moral values that govern daily behavior and crucial decisions. From a professional perspective, ethics provide a given quality and ensures a fair practice. In terms of business, it is the moral duties and obligations that apply to various professions and their code of conduct. Ethics encompass a set of understood rules to guide the direction of a business, company, corporation, or organization. Ethics are essential and tremendously depended on in the profession of accounting. According to the Merriam-Webster dictionary, accounting is defined as, “The skill, system, or job of keeping the financial records of a business or person.” The system of accounting records financial transactions and analyzes, reports, and verifies the results. Accountants perform these tasks by establishing these reports through a system known as bookkeeping. The three common reports that are generated by accountants are balance sheets, income statements, and cash flow statements. Each of these reports serve a crucial purpose to the success of a corporation. The balance sheet summarizes a company’s assets and liabilities. The income statement reports a company’s gross proceeds, profit or loss, and expenses. The cash flow statement analyzes the flow of incoming and...
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...Waste Management, Inc. is the nation's largest waste collector (Feder). In other words, they collect and recycle garbage. They are a known brand and dominate the regions of the country and Canada where they provide services. Grownups and kids alike see their trucks and think, "Garbage". Which could sound awful, but garbage is lucrative. In the early 1990's, Waste Management, instead of just picking up the garbage, provided garbage to their investors in the form of an accounting scandal which cost investors approximately $6 billion (Bloomberg News) and was described by Thomas C. Newkirk, associate director of the SEC's Division of Enforcement as "one of the most egregious accounting frauds we have seen" (SEC). What Mr. Newkirk is describing is a long-standing policy by those at the top of the executive rung at Waste Management to provide their auditors, auditing committee, and the public false and misleading numbers in a variety of ways. First, these highest level executives would set earnings targets without regard to current or recent past results. They would then manipulate the numbers to match the previously set targets. Why? They wished to show tremendous growth in their business which would enrich them personally as they kept their jobs regardless of actual results. They also reaped the benefit of higher bonuses and increased income as they sold off their personal shares of the company at market prices which did not reflect the actual company results. It would be akin...
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...AIG / Gen Re 2004 ACCOUNTING SCANDAL Table of Contents I. Introduction 3 II. The Companies and Participants 4 III. The Setting 5 IV. Aftermath 9 V. Conclusion 10 I. Introduction AIG’s accounting scandal is one of the biggest accounting scandals in the first decade of 21st century. In 2004, SEC discovered that AIG rewrote its financial reports for years from 2000 to 2004, with support from Gen Re, one of the biggest reinsurers in the world. This scandal led to reduction of AIG’s net income in 2004 of $1.32B, and total settlement of $1.6B from government. AIG was also accused of violating 16 counts of the criminal code. II. The Companies and Participants AIG is the world’s largest insurance and financial services company. AIG, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities worldwide. In 2007, AIG has 93,000 employees, business in 130 countries, $6.2 billion net income, and $59.8 billion premium written. Gen Re Corporation, established in 1921, is a Connecticut corporation with its principal corporate offices located in Stamford, Connecticut. Gen Re became a wholly-owned subsidiary of Berkshire Hathaway Inc. on December 21, 1998. It is one of the largest reinsurers in the world. In 2007, Gen Re has $6.0 billion premium written. Hank Greenburg, CEO of AIG, was born in 1925. He admitted to NY Bar in 1953, and joined AIG 1962. In 1968, he was named CEO. He has led AIG for 38 years, until he stepped down...
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