worldcom.doc - Q1 In the early 2001 effort to reduce line...

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Q1 In the early 2001 effort to reduce line costs,Sullivan directed General Accounting to reduce the Wireless division’s expense for line costs by 150 million.Troy Normand,a Director in General Accounting told a manager to book an entry that would reduce line costs by 771 million and increase two asset accounts. Both of these entry have no detailed evidence supported.In order to figure out whether these accounting practice are proper.We should know what is accounting evidence first. As my known,entry evidence are used to recorded economic business has already occurred, perform or complete and clear economic responsibility.Such as business trip aboard the ship ticket, procurement of materials and invoice to warehouse picking picking list, etc.Accounting evidence is directly generated in the process of economic business happens, economic business initially proved that legally authentic.That means if you need evidence to prove your business is legal. Except that accounting evidence are used to prove your business is legal.The accounting evidence should also be audited by the CPA.The accounting evidence is the carrier of the accounting information. Paperwork is recorded in the accounting entity of economic activities, is the foundation of accounting. Filling in and audit accounting evidence is the first step in the accounting work. True and correct accounting evidence is prerequisite to guarantee the quality of accounting information. In the Worldcom case,these two journal entry were just made up without enough evidence to support.It is not qualified for the accounting standard and has a high risk .Therefore,in my opinion,this was not a proper accounting practice. Q2 According to the GAAP,Regulations, in accordance with accounting principles generally accepted in most cases, the use of accrual accounting, not cash basis of accounting. Principle of accrual basis accounting, support the revenue recognition, check, and the cost principle.Regardless of when cash changes hands. And besides the accrual accounting,relevance, reliability and consistency principle also play a big role in the GAAP. GAAP requires financial information must be relevant, reliable, and use a consistent writing style.
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Reliable information is verifiable and objective. Consistent information is prepared for each accounting period in the same way, the same company in different periods and different companies can make a meaningful comparison between the financial statements. So,according to these two basic principles in the GAAP.We can simply recognize that what is the impropriety and propriety of releasing of $150 million in line cost.
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