9796622__Financial_Statements_

9796622__Financial_Statements_ - Financial Statements...

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Financial Statements 1 Running head: HOW DO PEOPLE MANIPULATE FINANCIAL STATEMENTS FOR How Do People Manipulate Financial Statements For Their Own Benefits Like in the Accounting Scandal in WorldCom Corporation? [Author’s Name] [Institution’s Name]
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Financial Statements 2 How Do People Manipulate Financial Statements For Their Own Benefits Like in the Accounting Scandal in WorldCom Corporation? Financial statements are the result of applying financial accounting standards or legal accounting rules to the transactions of a financial statement entity. However, the quality of financial statements depends not only on the quality of the standards that is their ability to adequately portray the economics of the underlying transactions and events. Even high- quality accounting standards result in high-quality financial statements only if they are properly applied. Those who use financial statement should be skeptical of the reliability of the information. If these difficulties are known, any standard-setter should explain what an equity number of a balance sheet is saying. (Rosenberg, Scott 1997) Interestingly, there seems to be no clear answer within those frameworks, which argue that they will support information that is useful for decisions. Turning to my second point, fair-value measurement, there are again simplifications in accounting standards that might cause expectation gaps. (Baetge, J., Heitmann, C. 2000) Accounting scandals such as Enron and Worldcom have focused the attention of the broader public on issues of the quality of accounting standards and the enforcement of accounting
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Financial Statements 3 standards. Dieter Ordelheide has contributed much to the improvement of German accounting regulation, particularly in the area of consolidated financial statements. He has also been a pioneer in the debate on the enforcement of accounting regulation and has initiated important research in this hitherto neglected area. The literature on enforcement predominantly describes or discusses the design of enforcement institutions, either in their national settings or on the basis of international comparisons. Only a few empirical studies try to document and analyze the degree of compliance with accounting standards. Following graphs shows the earnings per share numbers versus free cash flow per share over the Sept. 98 - Sept. 2000 period 1 : 1 Following facts and figures have bee taken from http://www.spredgar.com/Newsletters/worldcom.htm
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Financial Statements 4 On June 25, 2002, the world was stunned by the discovery of a $ 3.8 billion accounting fraud at leading US telecom company WorldCom Inc. This incident led to the termination of its CFO Scott Sullivan and Controller David Myers, and resulted in the biggest stock market crash at that time. Angry investors filed suits against the company in different courts and 17,000 employees lost their jobs. Later, on July 21, 2002, the company filed for bankruptcy protection under chapter 11 of US Bankruptcy code. Under this protection, the company was allowed
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This note was uploaded on 11/29/2010 for the course MANAGEMENT EM-14793 taught by Professor Lindaryaan during the Spring '08 term at Windsor.

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9796622__Financial_Statements_ - Financial Statements...

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