20030128-accountingfraud1 - THE NATIONS NEWSPAPER...

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Collegiate Case Study Accounting fraud Enron law firm called accounting practices 'creative' By Greg Farrell www.usatodaycollege.com “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 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 Case Study Expert: John D. Martin, Ph.D. Professor of Finance, Baylor University 26% Would let a gift sway a company purchasing decision Greed is still good MBA Jungle magazine recently conducted a survey about the business ethics of MBA students. Some of the results: USA TODAY Snapshots ® By Darryl Haralson and Adrienne Lewis, USA TODAY Source: MBA Jungle survey of 445 business students Would reveal corporate secrets to a spouse or family member Would pay someone off to help close a business deal 50% 13% Would buy stock on inside information received from a friend 52% TOP SECRET Capitalizing on oldest trick in book How WorldCom, and others, fudged results Cover story 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. Showing that accounting gimmicks may fade but never really go away, WorldCom acknowledged it improperly "capitalized" costs. This shenanigan was believed to be one that is quickly detected by analysts and, if not, used to fudge books by much smaller amounts. "This had been a huge problem at one time, but it has receded over the years," says Robert Willens of Lehman Bros. "How was this overlooked by people who are supposed to be looking at it?" he asks. WorldCom used the gimmick to a level never before seen. The company showed a $1.4 billion profit in 2001, rather than a loss, by using what's essentially the oldest trick in the book. Rather than subtracting certain costs — which analysts think were for maintaining telecom systems — from profit, it called them long-term investments. Doing this allowed WorldCom to inflate earnings because the costs of long-term investments are subtracted from earnings over time, rather than all at once up front.
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This note was uploaded on 07/11/2010 for the course ACC 5110 taught by Professor Lee during the Winter '10 term at Wayne State University.

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20030128-accountingfraud1 - THE NATIONS NEWSPAPER...

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