...Memo of law Question/Issue Presented What evidence can be found during a legal discovery and how does this affect the record-keeping policy of a business organization? Applicable Law and Ethical Standards Newby v. Enron Corp. , 2002 U.S. Dist. LEXIS 28397 (S.D. Tex. May 1, 2002) Newby v. Enron Corp. (In re Enron Cor... , 2003 U.S. Dist. LEXIS 1668, Fed. Sec. L. Rep. (CCH) P92404 (S.D. Tex. Jan. 28, 2003) United States v. Arthur Andersen LLP , 2002 U.S. Dist. LEXIS 26870 (S.D. Tex. May 24, 2002) 18 USCS § 1512 Discussion/Analysis (of Law and Facts) During a legal discovery which includes the procedures of Deposition, Interrogatories and Production of Documents there can be different evidence found depending on the area of work the business organization is involved in. An example could be that a company tried to create false documents with the intent to seem like a good investment or to avoid paying taxes. During a deposition evidence can be found that people questioned tell conflicting stories. It is crucial to be able to deliver the right documents requested during a discovery. Therefore, it is important to have an organized record-keeping policy for any organization. Furthermore, a business should keep its records as correct as possible and not be tempted to give in to fraud, changing documents or destroying important documents. A company should follow the law to keep the required documents. It would be a crime to hide, destroy and/or withhold subpoenaed...
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...Final Paper: Case Study of WorldCom Financial Statement Fraud Introduction This paper will discuss the financial statement fraud committed by WorldCom by examining what led up to the fraud, who committed it and why, and the impact it caused on various stakeholders and the economy. WorldCom applied aggressive and undisclosed accounting tactics to provide financial statements that reflected a $10 billion profit for the years 2000 and 2001, rather than the actual combined loss of $73.7 billion that occurred (Romar, 2006). Opportunity, pressure, and rationalization were all present in this severe example of financial statement fraud which had a devastating impact on stakeholders globally. Basis for Understanding Financial Statement Fraud Prior to taking a deep dive into this specific example, it is important to first understand what constitutes financial statement fraud. Financial statement fraud can be defined as “deliberate misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors” (Wells, 2011, p. 299). Financial statement frauds can be broken down into five distinct categories: fictitious revenues, improper asset valuations, concealed liabilities and expenses, timing differences, and improper disclosures” (Wells, 2011, p. 292). The History of WorldCom “WorldCom began in Mississippi as a small provider of long distance telephone services” (Lyke, 2002). However, due to deregulation...
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...Falling short of their words, we find the falling of this company through their illegal ethics that brings forward much of their self-interest needs and not those of the company and investors that they are responsible for and to. After the investigation, their accounting firm, Anderson, played both sides by providing dual services, auditing and consulting, which is considered a conflict of interest. They would take money from new investors and pay the old ones, they knew how to hide the debts and only show where there were profits. Falsifying documents and shredding of reports to hide what they didn’t want investors & employees to see as well. Senior executives cashing out their stocks to make millions for themselves and telling the rest of the company that they cannot cash out theirs, that it’s for the sake of the company to keep being invested. At the cost of the employees and investors, the executives were unethical, breaking the rules of the SEC and seek to gain it all for themselves, this is “self-interest” and illegal. They knew what they were doing, especially when it was reported by an Enron accountant saying she was “incredibly nervous that we will implode in a wave of accounting scandals.” They never warned employees or the public of their problems, but instead Chairman Ken Lay lied to the staff. A distribution email was sent by him to the staff stating, “Our performance has never been stronger; our business model has never been more robust;...
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...(kickbacks, extortion); and fraudulent statements (financial statements, employment credentials)” (Akron/Canton, 2012). Without the knowledge of occupational fraud and abuse a company’s bottom line could be seriously affected. Not only does occupational fraud and abuse affect a company’s bottom line, but it can also affect employee morale, and customer loyalty. Undetected fraud and abuse can and has destroyed companies in the past and we as a company should make sure this does not happen. 2) U.S. governmental oversight of accounting fraud and abuse and its effect on the company. The United States government has implemented rules and regulations to handle occupational fraud and abuse. These rules and regulations come with penalties on companies and management personnel that have committed occupational fraud and abuse. In 2002 the United States government enacted the Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act. The SOX act is an oversight that makes the top management certify that the financial...
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...Regardless of the term accounting in forensic accounting, the discipline isn’t related to simply reading financial statements that are available to the public or dealing with other accounting issues; the usual accountants, portfolio managers, investment analysts, and etc. already do the regular financial tasks. Instead, forensic accounting scrutinizes the financial documents that are internal which aren’t readily available to the public; these documents are usually considered in litigation affairs. Generally, the field of accounting was undergoing a major overhaul; before the recent economic crisis that has devastated some parts of the western world, the accounting scandals regarding WorldCom and Enron pushed the field towards change. Accounting in general was put under scrutiny as a result of increasing white collar crime and the economic crisis pushed that process even faster and further. Ergo, there was an increasing need to have forensic accountants and the field in general needs proper development in its education system and practice for it to be effective. Overall, the laws of the developed world favor the ones who commit white collar crimes rather than a person robbing a convenience store with a gun. The problem with policymaking in the current democratic regimes is that it’s a paradox that allows white collar crimes like WorldCom and Enron to get away or only end up with a milder outcome than the robbers who may physically go out and do it with a gun. Of course, debating...
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...REPORT OF INVESTIGATION BY THE SPECIAL INVESTIGATIVE COMMITTEE OF THE BOARD OF DIRECTORS OF WORLDCOM, INC. Dennis R. Beresford Nicholas deB. Katzenbach C.B. Rogers, Jr. Counsel Wilmer, Cutler & Pickering Accounting Advisors PricewaterhouseCoopers LLP March 31, 2003 I. SUMMARY AND CONCLUSIONS ................................................................................. 1 A. The Nature of the Accounting Fraud....................................................................... 9 1. 2. B. C. D. E. Reduction of Reported Line Costs .............................................................. 9 Exaggeration of Reported Revenues ......................................................... 13 WorldCom’s Culture ............................................................................................. 18 Compromising Financial Arrangements ............................................................... 24 Why WorldCom’s Auditors Did Not Discover the Fraud..................................... 25 WorldCom’s Governance...................................................................................... 29 1. 2. 3. 4. Board’s Lack of Awareness of Accounting Fraud .................................... 29 Adequacy of Board’s Oversight of Company ........................................... 30 Stock Sales ................................................................................................ 33 Lease of Airplane to Chairman of Compensation Committee ......
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...their business elsewhere. 3. If Baidu.com could reassure their stakeholders that their information is reliable. And the companies that pay for advertising will receive the services expected. If they are unable to restore their creditability they could possibly go out of business as indicated by the drop in their stock. ‘5. By developing a culture of openness and by diminishing that culture of secrecy. And the government putting laws in place to determine the behavior of the country. WorldCom: The Final Catalyst 1. WorldCom created excess reserves or provisions for future expenses, which they later released or reduced, thereby adding to profits. The manipulation of profit through reserves or provisions is known as “cookie jar” accounting. According to the SEC first, WorldCom improperly released certain reserves held against operating expenses. Second, WorldCom improperly recharacterized certain operating costs as capital assets. 2. I am uncertain, but I believe the Arthur Andersen auditor lost its independence when conducting the WorldCom audit. Two members of upper management were previous employees of Arthur Andersen made personal. And the fact that Andersen’s...
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...twenty first century, and in the wake of the terrorist attacks of 9/11, the business world was rocked with news of financial and accounting scandals at major Fortune 500 companies. Enron, a Texas based energy company, lied about profits and was accused of concealing debts so they did not show up in the company’s accounts (BBC News, 8/22/2002). Arthur Andersen, an accounting giant, member of the “Big Six”, and Enron’s corporate auditor, collapsed completely after being found guilty of deliberately destroying evidence of its relationship with Enron (BBC News, 8/22/2002). Tyco executives L. Dennis Kowlowski and Mark H. Swartz were indicted and charged with misappropriating more than 170 million dollars from the company as well as outright stealing 430 million additional dollars through sale of fraudulent shares of Tyco stock (Daniels Funds Ethics Initiative). MCI Worldcom was found guilty of accounting fraud in relation to an overstatement of earnings in 2001 and 2002 (CSR Report for Congress, 8/29/2002), during which time its own auditor was also Arthur Andersen. Executives at each firm (Kenneth Lay, Bernard Ebbers, Dennis Kozlowski, and Mark H. Swartz amongst others) served jail time for their role in these scandals, which severely eroded the public’s trust in the corporate sector. Tyco’s stock plunged from $60.00 to $18.00 in the wake of the scandal, and many employee stockholders saw their savings dissolve (Daniels Fund Ethics Initiative). MCI Worldcom employees/stockholders...
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...Baluyot, Krishia Mae E. BSAV-2A Scandals that Rocked the Accounting World ❖ Enron Scandal The Enron Corporation led to bankruptcy Last October 2001. It is an American energy company based in Huston, Texas, and the termination of Arthur Andersen, which was one of the biggest audit and accountancy partnerships in the world. Enron is also attributed as the biggest audit failure. Enron was founded in 1985 by Kenneth Lay after merging Houston Natural Gas and Inter North several years later. When Jeffrey Skilling was hired, he developed a staff of executive that, with the use of accounting loopholes special purpose entries, and poor financing reporting, were able to hide billions in debt from failed deals and projects. Shareholders lost nearly $11 billion when Enron's stock price, which hit a high of US$90 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a fire sale price. The deal fell through, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron's $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom's bankruptcy the following year. Many executives at Enron were indicted for a variety of charges and were later sentenced to prison. Enron's auditor, Arthur Andersen, was found guilty...
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...WorldCom Case Study1 By Dennis Moberg (Santa Clara University) and Edward Romar (University of Massachusetts-Boston) (The original of this document can be found at the Santa http://www.scu.edu/ethics/dialogue/candc/cases/worldcom.html#one. Clara University website at An update for this case is available at http://www.scu.edu/ethics/dialogue/candc/cases/worldcomupdate.html . Note that this update is not part of the syllabus for the PRM or Associate PRM exam. It is included for reference and explanation only.) 2002 saw an unprecedented number of corporate scandals: Enron, Tyco, Global Crossing. In many ways, WorldCom is just another case of failed corporate governance, accounting abuses, and outright greed. But none of these other companies had senior executives as colorful and likable as Bernie Ebbers. A Canadian by birth, the 6 foot, 3 inch former basketball coach and Sunday School teacher emerged from the collapse of WorldCom not only broke but with a personal net worth as a negative nine-digit number.2 No palace in a gated community, no stable of racehorses or multi-million dollar yacht to show for the telecommunications giant he created; only debts and red ink--results some consider inevitable given his unflagging enthusiasm and entrepreneurial flair. There is no question that he did some pretty bad stuff, but he really wasn't like the corporate villains of his day: Andy Fastow of Enron, Dennis Koslowski of Tyco, or Gary Winnick of Global Crossing.3 Personally, Bernie...
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...Enron and Arthur Andersen Accounting Scandal The Enron accounting scandal resulted in a loss of reputation to Arthur Andersen which was a result of fraudulent financial statement reporting. Crimes discovered included irregular accounting procedures which could be turned in as fraud which involved Enron and Arthur Andersen as its accounting firm. They were found to have committed wire fraud, security fraud, making false statements to banks, creating several “independent” companies, called “Special-Purpose Entities” (SPEs) and using them as a way to hide many bad and devalued assets to fool investors into believing Enron was financially healthy so Enron executives could pocket millions from sales of inflated stock. They created a company called LJM1 which purchased the provider’s stock at inflated prices and took them off the books at Enron. Later, when the price of the stock fell, Enron did not have the loss on its books. LJM allowed Enron to move money-losing assets off its balance sheet. LJM was also involved in complex hedging that was supposed to reduce the volatility of some of Enron's investments, including stakes in high-tech and telecom businesses. Arthur Andersen, Enron’s accountants, were accused to have allowed LJM1 to be isolated from Enron’s books, and go unnoticed. In the end, LJM1 was stuck with stock from the internet provider, which they purchased from Enron at inflated prices, and now were worth much less. Andy Fastow was the Enron executive who...
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...Paper Financial reporting is a process that been under a great deal of problems. It is one of the most important functions that an organization has to pay close attention to; it requires a higher code of ethical behavior. Ethical standards are a set principal that promotes values such as trust, good behavior fairness, and kindness in an organization. Financial management involves ethical standards as well reporting practices in health care. Organizations have to report financial data fairly and factually. Not reporting financial planning can cost the organization money that will affect the investor’s patients, and employees. In my article I will discuss the four elements of financial management, explain the generally acceptable accounting principals and general financial ethical standards. I will also give examples form the articles read that reflects ethical standards of conduct and financial reporting practices. The four elements of financial management are: controlling, planning, organizing and directing, and decision making. The four elements are based on the purpose of each task. Planning is the systematic process of making ethical decisions about the goals the organization will pursue. The manger has to ensure that enough funding is available at the right time to meet the needs of the business. Controlling is where the financial manager makes sure that each area of the organization is following the plans that are established. Organizing and directing, when...
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...com/product/acc-576-wk-4-assignment-1/ Contact us at: SUPPORT@ACTIVITYMODE.COM ACC 576 WK 4 ASSIGNMENT 1 ACC 576 WK 4 Assignment 1 - Audit Planning and Activities Search the Internet for a recent occurrence of accounting fraud that an independent accounting firm failed to detect. Write a three to four (3-4) page paper in which you: 1. Evaluate the extent of the fraud in question, and suggest three to five (3-5) reasons why the independent auditors failed to detect the fraudulent activity. 2. Determine the level of responsibility of the auditors to detect within the scope of the audit activities. 3. Suggest the main audit procedures that the firm should have performed to detect the fraud. Indicate your rationale behind your suggested audit procedures. More Details hidden... 1. Activity mode aims to provide quality study notes and tutorials to the students of ACC 576 WK 4 Assignment 1 in order to ace their studies. ACC 576 WK 4 ASSIGNMENT 1 To purchase this visit here: http://www.activitymode.com/product/acc-576-wk-4-assignment-1/ Contact us at: SUPPORT@ACTIVITYMODE.COM ACC 576 WK 4 ASSIGNMENT 1 ACC 576 WK 4 Assignment 1 - Audit Planning and Activities Search the Internet for a recent occurrence of accounting fraud that an independent accounting firm failed to detect. Write a three to four (3-4) page paper in which you: 1. Evaluate the extent of the fraud in question, and suggest three to five (3-5) reasons why the independent auditors failed to detect...
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...AICPA violations committed by Andersen and Enron CPAs. 1. Article I – requires professionals to maintain the integrity of the profession, as well as, maintain the public's confidence which was not done by Arthur Andersen when the signed off on document knowingly containing material misstatements which is a violation of the very essence of auditing principles. The CPAs of Enron should have stood up for their morals and the public’s best interest when they saw what was occurring. 2. Article II- suggests that when conflicts of interest arise, members shall act with integrity, and members should seek to continually demonstrate their dedication to professional excellence. Because Andersen was receiving million in fees and contractual agreements from Enron, they turned a blind eye to the events unfolding putting every investor and the public’s money in jeopardy. Additionally the CPAs at Enron would have known about the conflicts of interest between upper management and the subsidiaries they were establishing to generate revenue. 3. Article III- integrity should remain of the utmost importance and does not accommodate deceit or subordination of principle. While Andersen recommended certain action Enron should take to remain compliant, Enron, including their CPAs, decided not to follow the advice. However, Andersen still remained quiet about the material misstatements and authorized financial records. 4. Article IV – suggests that regardless of service or capacity...
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...cost into the following year which all the company the report better-than-expected results. The alleged fraud gave the company a string of earning beats and a strong rise in its stock. It also allowed Diamond Foods Inc the necessary currency needed to clinch a deal to buy the Pringles snack brand from Proctor and Gamble for $2.35 billion. Everything unraveled after the Wall Street Journal and some skeptical investors questioned the company’s accounting. According the Diamond Foods Inc, they conducted an internal investigation and ultimately restated its finances for the 2010 and 2011 fiscal years. The restated numbers showed the stock price per shared dropped from $90 a share to $13 a share. The fraud also had a negative impact on acquiring the Pringles snack brand. Diamond fired Mendes and Neil in early 2012 and restated its earnings after an internal probe concluded that the accounting was improper. (Hamilton, 2014) On January 9th 2014, the Securities and Exchange Commission charged Diamond Foods and its former SFO in an accounting scheme to falsify walnut costs in order to boost earnings and meet estimates by stock analysts. The SEC also charged Diamond’s former CEO for his role in the company falsifying financial statements that were filed with the SEC. Diamond Foods agreed to pay $5 million to settle the SEC’s charges. Former CEO Michael Mendes also agreed to settle charges against him....
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