SOLUTIONS TO CONCEPTS FOR ANALYSIS
Accounting numbers affect investing decisions. Investors, for example, use the financial statements of different
companies to enhance their understanding of each company’s financial strength and operating results.
Because these statements follow generally accepted accounting principles, investors can make meaningful
comparisons of different financial statements to assist their investment decisions.
Accounting numbers also influence creditors’ decisions. A commercial bank usually looks into a company’s
financial statements and past credit history before deciding whether to grant a loan and in what amount. The
financial statements provide a fair picture of the company’s financial strength (for example, short-term liquidity
and long-term solvency) and operating performance for the current period and over a period of time. The
information is essential for the bank to ensure that the loan is safe and sound.
The ethical issue in this case relates to making questionable entries to meet expected earnings forecasts.
As indicated in this chapter, businesses’ concentration on “maximizing the bottom line,” “facing the
challenges of competition,” and “stressing short-term results” places accountants in an environment of
conflict and pressure.
Given that Normand has pleaded guilty, he certainly acted improperly. Doing the right thing, making the right
decision, is not always easy. Right is not always obvious, and the pressures to “bend the rules,” “to play
the game,” “to just ignore it” can be considerable.
No doubt, Normand was in a difficult position. I am sure that he was concerned that if he failed to go
along, it would affect his job performance negatively or that he might be terminated. These job pressures,
time pressures, peer pressures often lead individuals astray. Can it happen to you? One individual noted
that at a seminar on ethics sponsored by the CMA Society of Southern California, attendees were asked if
they had ever been pressured to make questionable entries. This individual noted that to the best of his
recollection, everybody raised a hand, and more than one had eventually chosen to resign.
Major stakeholders are: (1) Troy Normand, (2) present and potential stockholders and creditors of
WorldCom, (3) employees, and (4) family. Recognize that WorldCom is the largest bankruptcy in United
States history, so many individuals are affected.
SOLUTIONS TO CODIFICATION EXERCISES
The Codification Overview module illustrates three items (1) the topic structure (2) different methods of
accessing and viewing content, and (3) a summary of the unique features of the Codification Research