Question 2

Question 2 - SECTION 83 FALSE ACCOUNTING In 2001Business...

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SECTION 83: FALSE ACCOUNTING In 2001Business Operations employees searched for revenue opportunities to “close the gap” A 1999 contract required EDS to outsource some services to WorldCom Contract required minimal commitments measured at the end of a five year period, if not met EDS paid a penalty Integrating GAAP Generally accepted accounting principles (GAAP) are a set of rules and practices, having substantial authoritative support, that are recognised as a general guidance for financial reporting purposes. Interrelationships among various aspects of GAAP: Reporting entities (SAC 1) are required to prepare general purpose financial reports that are useful for decision making by the resource providers and the usefulness is dependent upon the information’s qualitative characteristics. Accounting period concept and revenue and expense recognition criteria are interrelated. The definitions of assets, liabilities, equity, income and
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Unformatted text preview: expenses are linked APPLY S.83(2) For purposes of this section a person who makes or concurs in making in an account or other document an entry which is or may be misleading, false or deceptive in a material particular, or who omits or concurs in omitting a material particular from an account or other document, is to be treated as falsifying the account or document In the third quarter of 2001 the employees recognized $35 million on potential penalty fees as revenue, and $5 million each following quarter During this time EDS still had three years to meet minimum use requirements Not in conformity with GAAP, speci±cally SAB 101 No revenue had been realized, or earned >>The penalties, if enforced, could not be paid until 2005 as stated in the contract. The reporting decision is inconsistent The estimation was not based on any historical data Entries were made to purposely overstate income...
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  • Income Statement, Generally Accepted Accounting Principles, eds, financial reporting purposes, substantial authoritative support, potential penalty fees

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