...facts of the scandals at Enron ................................................................................. 1 3. Summary of facts of the scandals at WorldCom ........................................................................ 2 4. Enron and WorldCom executives prosecution ........................................................................... 5 5. Effects of the scandal, legislative perspective ............................................................................ 5 6. Comment and lesson to Rwandan business sector ...................................................................... 7 6.1. Corporate governance .......................................................................................................... 7 6.2. Committed crimes during the scandals .............................................................................. 10 6.2.1. Insider trading .............................................................................................................. 10 6.2.2. Wire fraud .................................................................................................................... 11 7. Conclusion ................................................................................................................................ 12 8. Authorities................................................................................................................................. 13 1 Lessons from Enron and WorldCom cases 1. Introduction ...
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...ACC 260 Week 2 The Enron and WorldCom Scandals Material A+Grade Get Tutorial by Clicking on the link below or Copy Paste Link in Your Browser https://hwguiders.com/downloads/acc-260-week-2-the-enron-and-worldcom-scandals/ For More Courses and Exams use this form ( http://hwguiders.com/contact-us/ ) Feel Free to Search your Class through Our Product Categories or From Our Search Bar (http://hwguiders.com/ ) Assignment: The Enron and WorldCom Scandals • Resource: Business & Professional Ethics • Due Date: Day 7 [Individual forum] • Review the accounts of the Enron and WorldCom scandals in Ch. 2 of the text: o Enron’s Questionable Transactions on pp. 96-107 o WorldCom: The Final Catalyst on pp. 114-118 • Answer the following questions using complete sentences: o Enron: 1, 3, 5, 6, and 9 on pp. 106-107 o WorldCom: 1, 3, 4, and 5 on p. 118 • Post your answers as an attachment. Clearly label the case and question number for each of your responses. Enron questions 1, 3, 5, 6, and 9 1. Which segment of its operations got Enron into difficulties? The first thing that got them into trouble was the fact that Kopper was appointed to Fastow and he was an employee of Enron. I do not believe that he had the best interest involved. Another thing was that over 11 million was suppose to be invested and it never was. I believe that this was the start of the problems! Another thing was the fact that Enron was incorrectly booking revenue for services that was...
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...are important and involves money opens doors for unethical practice and behavior. In the past years companies like Enron and WorldCom have been scandalize for its company’s unethical conduct in accounting. In the wake of numerous corporate scandals the Sarbanes-Oxley Act (SOX) of 2002 was created to protect investors by improving the reliability and accuracy of corporates disclosure made pursuant to the securities laws, and for other purposes. Although many companies run their business honestly, others turn out to be criminals, robbing their customers’ qualm, or dragging themselves into illegal practices slowly through good intentions or ignorance. Companies may be tempted to practice unethical behavior in accounting for different reasons such as greed, opportunity, disconnection, and ignorance. Unethical practices and behaviors also include: manipulation of financial, bribery, insider trade, misuse of funds, exaggerating the value of corporate assets, exaggerating revenue, securities fraud, purposely providing erroneous information relating to expenses, and kickbacks, purposely providing erroneous information relating to liabilities, and manipulation of the financial markets. The paragraph below provides examples of two of the most discussed company involved in the U.S accounting scandal. Since the early 80s the United States have been rocked by accounting scandals that forced the U.S. government to increase regulations. In late...
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...Scandal and Fraud in the Business World Diana Christina Lopez The University of Houston-Victoria Abstract These papers explore the scandal and fraud of two multibillion dollar companies who file for the largest bankruptcy in business history. In the case of both Enron and WorldCom, the causes of fraud surrounded the manipulation and misleading financial reports created by accountants. Enron was accused of lying about its profits and committing a range of inappropriate deals, including hiding the company’s debt so it would not show in the financial statements to the public. Enron was not the only company that made history for fraudulent events. WorldCom, the largest handler of long distance internet data filed for bankruptcy a year after Enron. Although Enron and WorldCom were scandals that shocked the world, they are learning examples of what can no longer be happen in corporations. Government leaders are also announcing major changes in the regulations of accounting and corporate governance to bring trust back into the financial market. Key terms: Enron, WorldCom, Sarbanes-Oxley Act, Accounting, Fraud, Scandal, Financial reports Scandal and Fraud in the Business World Over the past few years, all we heard and seen in the media is how multibillion dollar companies are filling for bankruptcy. Many wonder how companies with growing income can fall apart from one day to another. Who is to blame? Many experts blame the unethical practices by accountants. Accounting...
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...RUNNING: Demise of Enron Corporation® and WorldCom® Demise of Enron Corporation® and WorldCom® Your Name October 31st, 2012 FIN/486 Instructor Enron Corporation and WorldCom In the last decade, two powerful American companies, Enron Corporation and WorldCom, have become the models of accounting corporate fraud. The Enron Corporation was founded in 1985 by Kenneth Law in Omaha, Nebraska. The company later moved its operation to Houston Texas when InterNorth and Houston Natural Gas merged. This American organization offered paper, pulp, electric, communication, and natural gas manufacturing. Enron employed over 20,000 professionals and reported earnings worth over 100 billion dollars. A few years earlier, on the other side of the country, WorldCom was established by Bernand Ebbers in Hattiesburg, Massachusetts . WorldCom make great growth strokes through mergers, acquisitions, long distance rates, and cutting edge technology in the communications industry. It achieved an unprecedented success that would soon unveil accounting fraud, scandal, and shameful demise. But in 2002 Enron and WorldCom were exposed as corrupt organizations, run by fraudsters that had lined their pockets with tens of millions of dollars and destroyed $240 billion dollars worth of investor's money (BBC News, 2012). Major Factors that Led to the Dissolution Business ethics are the standards of conduct or moral judgment that apply to persons engaged in commerce. Violations of these...
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...Enron Case: Enron is known for the world’s biggest scandal in the history of American business. In Dec 2001, Enron Corp filed for bankruptcy. The major factors that led to the dissolution of Enron Corporation are the shortfall of business ethics of Enron’s management, accountants, auditors, board of directors and consultants. Off balance sheet arrangements made transactions between Enron and its partners were not clear and transparent. Between 1993 and 2001, Enron created over 3,000 SPEs that resulted in the overstatement of Shareholders’ Equity by $1.2 billion. This increased the size of loan portfolio of Enron without a corresponding increase in share capital. Securitization was not treated as financing vehicle and no adjustments to leverage ratios were made then. Enron violated US GAAP and recorded inappropriate capital stock transaction. Common stocks issued to SPE were accounted as notes receivable. GAAP doesn’t allow this transaction unless cash is received. This puffed up Stockholders’ equity by 8.5% or by $1 billion in 2001. Enron used its own common stocks to capitalize SPEs to satisfy US GAAP. When Enron shares went down certain partnerships had to invest just enough allow SPEs not to be consolidated into Enron’s Financial statement. Enron had to transfer additional shares to SPE, Rapto, in a futile effort to support. Enron recognized revenues due to increase in stock price on stocks held in SPE. Anderson accounting firm formulated a mechanism to record...
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...ORGANIZATIONAL CULTURES POISON COMPANIES THE RISE AND FALL OF ENRON, WORLDCOM, HEALTHSOUTH, AND TYCO INTERNATIONAL David R. Lease, Norwich University Abstract This paper presents an analytical and comparative study of four recent corporate scandals involving organizations that had previously been recognized as both ethically and organizationally sound. Based on these case studies, the following issues are discussed: (1) The role of leader behavior and organizational/leadership styles in shaping the corporate organizational culture of an organization, and (2) The extent to which this culture renders the organization and its members (including the top executives) prone to ethical misbehavior. The four companies selected for this case analysis are: Enron Corporation, WorldCom, Inc., Tyco International, Ltd., and HealthSouth Corporation. Each case is considered individually. The basic elements in the scandal are outlined and the principal aspects of each organization’s corporate culture discussed, with special emphasis on the influence of leadership styles and leadership behavior/practices on organizational culture. The four cases are then compared and contrasted in the light of the existing evidence on the relation between corporate culture and ethical misbehavior. PRELUDE “We were doing something special. Magical. It wasn’t a job – it was a mission. We were changing the world. We were doing God’s work.” – Jeffrey Skilling, former Enron COO, President and CEO in the immediate aftermath of...
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...WHY THE SARBANES-OXLEY ACT CAME ABOUT OR HOW TO COOK THE BOOKS The Sarbanes-Oxley Act of 2002 (Sarbox, or SOX) was enacted on July 30, 2002, to protect the general public and shareholders from accounting errors, unethical behavior, and corporate scandal. There are 11 titles that include the requirements for reporting, retention period for records storage, management of electronic records, and standards for external auditors. The act is supervised by the Public Company Accounting Oversight Board, and administered by the Securities and Exchange Commission (SEC). Sarbox requires the CEO and CFO to certify and be liable for the annual and quarterly reports that are filed. If the financial reports are discovered to be untrue, such acts of noncompliance are fines, imprisonment, or both, depending on the severity. The Act was designed for publicly traded companies only, in reaction to scandals such as Enron, WorldCom, and Tyco. These scandals cost investors billions of dollars when the companies collapsed, or the stocks plummeted. These companies altered or destroyed records, defrauded shareholders, or “cooked the books”. When a company cooks the books, it means that incorrect information has been used to create their financial statements. They manipulate earnings and expenses to improve the bottom line, or earnings per share (EPS). This manipulation of information is used to bring in new investors, keep the shareholders happy, attain a bonus, and reach their...
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...ACCOUNTING FRAUDS CONTENTS WHAT ARE FRAUDS? | WHAT ARE ACCOUNTING FRAUDS? | NOTABLE FRAUDS | NOTABLE OUTCOMES | MANIPULATION & FALSIFICATION OF RECORDS | MISAPPROPRIATION OF CASH BALANCES | MISAPPROPRIATION OF GOODS | TEEMING & LADING | WINDOW DRESSING | SECRET RESERVES | ENRON FRAUD | WORLDCOM FRAUD | WHAT ARE FRAUDS ??? FRAUDS AND THEIR CHARACTERISTICS Misstatements in the financial statements can arise from fraud. In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual, Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud Industries most commonly effected by fraud are banking, manufacturing, and government. Fraud can be committed through many media, including mail, wire, phone, and the Internet (computer crime and Internet fraud). * The term “fraud” refers to an intentional act by one or more individuals among management, those charged with governance, employees or third parties, involving the use of deception to obtain an unjust or illegal advantage. Although fraud is a broad legal concept, the auditor is concerned with fraudulent acts that cause a material misstatement in the financial statements. Misstatement of the financial statements may not be the objective of some frauds. Auditors do not make legal determinations of whether fraud has actually occurred. Fraud involving one or more members of...
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...THE NATION’S NEWSPAPER BS2003-01a Collegiate Case Study Enron law firm called accounting practices 'creative' By Greg Farrell www.usatodaycollege.com Accounting fraud Part I: The problems “Creative accounting” is not a new technique, but it can certainly be a costly one. Businesses feel the pressure to appear profitable in order to attract investors and resources, but deceptive or fraudulent accounting practices often lead to drastic consequences. Are these so-called creative practices always illegal or can they ever be justified? This case study will present examples of companies who have used inappropriate accounting practices, the results of their deceptions and the government's plan to avoid future incidents. Did banks play role in Enron scandal? By Edward Iwata Banks face accusations in Enron case By Edward Iwata Banks defend e-mail about Enron By Edward Iwata WorldCom finds accounting fraud By Andrew Backover, Thor Vladmanis, Matt Kranz and Michelle Kessler Former controller comes up more often By Andrew Backover and Chris Woodyard Cover story WorldCom’s bad math may date back to 1999 By Jayne O’Donnell and Andrew Backover CFOs join their bosses on the hot seat By Jim Hopkins Capitalizing on oldest trick in book How WorldCom, and others, fudged results By Matt Krantz USA TODAY WorldCom's accounting game is stunning investors who thought the loophole the telecom firm used was sewn shut years ago. Bros. "How was this overlooked...
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...Draft - Corporate Governance Considerations This material was prepared by Eliot H. Sherman – July 2005 FOCUS Learning Objectives By the end of this chapter, you should be able to: Understand the issues related to agency and delegated responsibility. Describe the similarities and the differences in the corporate scandals that have been identified in the past few years Identify the responsibilities of managers to the shareholders and other stakeholders associated with their corporations. OVERVIEW Corporate governance is not a new topic. It has been around for many years, often described as the “agency issue.” However, in recent years it has taken on increased significance, demanding increased attention. Since 2001, in particular, the corporate marketplace has seen a significant number of headline grabbing scandals involving major corporations. These scandals have raised new questions about corporate governance and, as a direct consequence of some of these situations, the U.S. Congress passed a very broad piece of legislation called the Sarbanes-Oxley Act of 2002. This law has had a wide range of consequences directly affecting large public corporations and public accounting firms and, less specifically, smaller public firms, private corporations, not-forprofit organizations and regulatory entities in many different ways. This law mandates some specific actions for large public corporations, many of these actions being required shortly after the legislation passed and others in...
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...Managerial Accounting Q1 | | | Instructor: Nikolaos Kourkoumelis, Ph.D. | Student: Marija Lukic | 11/14/2012 | | Table of Contents The Ethics in Accounting case and the plan…………………………………………….4Incidentals of Authorization and Submittal…….………………………………………………………………..4Objective………………………………………………………………………………………………………………………..4 Use of Observational Techniques…………………………………………………………………………………….4 An overview of the Report……………………………………...……………………………………………………….4Introduction………………………………………………...…………………………………………5The importance of Ethics in Accounting…….……………………………………………………………………..6 Creative Accounting…………………………………………………………………………….…7 Accounting Scandals..……………………………………………………………………………………………………10 The Enron Scandal……………………………………………………………………………………..10 The WorldCom Scandal………………………………………………………………….…………..12The consequences of Creative Accounting……………………..…………………………………13Measures of Prevention……………………………………………………………………………………15Conclusion……………………………………………………………………….…………………..17Bibliography……………………………………………………………...…………………………18 | Table of Figures Figure1. A proposed framework for understanding accounting manipulation practices…….……...9 The Ethics in Accounting case and the plan Incidentals of Authorization and Submittal This report is submitted to Dr. Nikolaos Kourkoumelis , professor of “Managerial Accounting” , on November 14th 2012, as authorized on the second Week of Q1 classes, 2012. The research and report was conducted under the...
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...make an organization's financial performance or condition seem better than it actually is. There are many examples of accounting fraud. * Merging short and long term debt into one amount for improving the perceived liquidity of the organization or a company. * Failing to disclose the risky investments or creative accounting practices. * Over-recording the sales revenue. * Under-recording expenses i.e. depreciation of expenses. From Enron, WorldCom and HealthSouth, it appears that accounting fraud is a major problem that is increasing in frequency and severity. research evidence has shown that a growing number of frauds have undermined the integrity of financial reports, contributed to substantial economic loses, and destroyed investors' confidence regarding the reliability of financial statements. The increasing rate of white-collar crimes demands stiff penalties and strong punishments. II. Introduction New laws and guidelines have helped reduce, but not eliminate fraud. Enron, WorldCom and HealthSouth scandals were detrimental to the public. Millions of dollars in investments the public made into those companies have been lost. The SEC (Securities and Exchange Commission) has taken a strong stance on fraud committed by...
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...although there has been improvement in the recognition of the importance of improving trust between the employee and management within many organizations, there has been little overall improvement in the trust of management by employees. However, this observation recognizes that many companies value building trust between employees and management more than other companies and that it will take additional time before this concept is globally accepted. Why the Topic is Important The topic of our research paper is the evolution of employee trust with corporate management. We will specifically discuss the history of management and employee trust relationships, give examples of scandals which led to distrust in management, and subsequent legislation and ethics policies that were created as a result of these scandals. Trust is invaluable in the organizational environment. Organizational behavior professors Steven McShane and Mary Ann Von Glinow define trust as “the positive expectations one person has toward another person in situations involving risk”. In order for an organization to efficiently perform the purpose for which it was created...
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...Unethical behaviors in the accounting field is extremely important to investors and stock holders. This is critical information will help determine their investment in the company and the amount of stock that they are going to purchase. Misleading financial funds in order to gain personal leverage, misuse of analysis, exaggerating revenue of assets, bribery and security fraud are just a few problems of unethical behavior. In 2002, Enron/Andersen and the Worldcom scandal were two companies that involved in unethical behaviors. Enron was accused of secretive involvement of keeping debts concealed without reflected on the company’s account. The biggest bankruptcy in history was due to the fraudulent account of Worldcom. Unethical accounting practices and scandals of the caliber of the Enron / Andersen and the WorldCom scandals is what led the U.S. government to get involved and at the same time contributed to the government’s creation of the Sarbanes – Oxley Act of 2002. The Sarbanes – Oxley Act was created by the government with the intention to bring to an end unethical behavior by implementing strict auditing rules in accounting. However, the Sarbanes-Oxley Act of 2002 addresses problems in the private sector. Without the Sarbanes-Oxley Act of 2002 private businesses would not have to much ground to stand when their funds are being misused, when their revenue is being lied about, when trades are done wrong, when the stock market value have been manipulated, when information...
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