Sample Essays, Example Research Papers and Tips Posted on by azseo Accounting Scandals in America The string of accounting scandals in corporate America in the past decade has contributed to public distrust in corporate operations and created an environment in which financial reporting is viewed with more suspicion than before. Together with Enron, WorldCom case has become a classical tale of accounting fraud. The accounting scandals ended deplorably for WorldCom management, including chief financial officer, Scott Sullivan and Bernie Ebbers, ex-chief executive officer.
Why Did It Happen? How could a loss of this magnitude have occured? Where were the checks and balances? Specifically, whatever happened to WorldCom's board of directors, the custodians of this once mighty corporation? Were they "asleep at the switch?
A great deal of my research was obtained from the Report and all of the quotes below can be directly attributed to the Report.
Accounting Misstatements WorldCom made major accounting misstatements that hid the increasingly perilous financial condition of the company. The Report described the accounting shenanigans as follows: As enormous as the fraud was, it was accomplished in a relatively mundane way: In the s, Ebbers was clearly focused on achieving impressive growth through acquisitions.
How was he going to pay for this acquisition binge? By using the stock of WorldCom. To accomplish this buying spree, the stock had to continually increase in value. Here's a bit of how the Report describes this scenario: WorldCom pursued scores of increasingly large acquisitions. The strategy reached its apex with WorldCom's acquisition in of MCI Communications, a company with more than two-and-a-half times the revenue of WorldCom.
Ebbers' acquisition strategy largely came to an end by early when WorldCom was forced to abandon a proposed merger with Sprint because of antitrust objections His only recourse to achieve this end was financial gimmickry.
The problem is that the more one resorts to this sort of deception, the more complicated it becomes to continue it. Deception is just not sustainable in the long run. Complicating Ebbers' situation was an industry-wide downturn in telecommunications.
During this time, Wall Street had continuing expectations of double-digit growth for WorldCom.
After all, they had achieved so much in such a relatively short period of time. However, WorldCom needed time for its management to catch up to its newly acquired companies and learn how to run and manage them. Unfortunately, Ebbers did not have the courage to tell Wall Street that WorldCom needed time for the consolidation and digestion of its acquisitions.
In order to satisfy Wall Street's expectations, Ebbers had to doctor his company's books. If he had had the courage to tell them what was really needed, WorldCom would be alive today and Ebbers wouldn't be facing the prospect of spending the rest of his life in prison.Fraud is a criminal offence and most countries have a well laid legal framework to work out such cases.
If found guilty, heavy fines are imposed, professional licenses such as auditing are cancelled, companies are declared bankrupt, among others.
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Read Corporate Fraud free essay and over 88, other research documents. Corporate Fraud. “Corporate Fraud” when you hear those words the first, most recent incident, many think of is The Enron Scandal.
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