...ACC 260 Week 2 The Enron and WorldCom Scandals Material A+Grade Get Tutorial by Clicking on the link below or Copy Paste Link in Your Browser https://hwguiders.com/downloads/acc-260-week-2-the-enron-and-worldcom-scandals/ For More Courses and Exams use this form ( http://hwguiders.com/contact-us/ ) Feel Free to Search your Class through Our Product Categories or From Our Search Bar (http://hwguiders.com/ ) Assignment: The Enron and WorldCom Scandals • Resource: Business & Professional Ethics • Due Date: Day 7 [Individual forum] • Review the accounts of the Enron and WorldCom scandals in Ch. 2 of the text: o Enron’s Questionable Transactions on pp. 96-107 o WorldCom: The Final Catalyst on pp. 114-118 • Answer the following questions using complete sentences: o Enron: 1, 3, 5, 6, and 9 on pp. 106-107 o WorldCom: 1, 3, 4, and 5 on p. 118 • Post your answers as an attachment. Clearly label the case and question number for each of your responses. Enron questions 1, 3, 5, 6, and 9 1. Which segment of its operations got Enron into difficulties? The first thing that got them into trouble was the fact that Kopper was appointed to Fastow and he was an employee of Enron. I do not believe that he had the best interest involved. Another thing was that over 11 million was suppose to be invested and it never was. I believe that this was the start of the problems! Another thing was the fact that Enron was incorrectly booking revenue for services that was...
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...The Quarterly Review of Economics and Finance 45 (2005) 48–64 Contagion effects of the world’s largest bankruptcy: the case of WorldCom Aigbe Akhigbea,∗ , Anna D. Martinb , Ann Marie Whytec a Department of Finance, College of Business Administration, University of Akron, Akron, OH 44325, USA b Department of Finance, Charles F. Dolan School of Business, Fairfield University, USA c Department of Finance, School of Business, University of Central Florida, USA Received 16 June 2003; received in revised form 23 December 2003; accepted 27 July 2004 Available online 26 November 2004 Abstract On July 19, 2002 WorldCom sought protection from its creditors when it filed for Chapter 11 bankruptcy, earning the distinction as the largest bankruptcy filing in U.S. history. The events surrounding this history-making occurrence provide an important opportunity to examine the repercussions for WorldCom’s stakeholders. We especially focus on the valuation effects of the WorldCom failure on exposed financial institutions for their important monitoring roles as institutional investors and creditors. Despite the heightened uncertainty facing investors during this period, we find that the market is remarkably efficient in distinguishing among the various types of stakeholders. In particular, institutional investors and creditors are largely unaffected by the events, which is expected based on the benefit of diversification. In contrast, large and key competitors are adversely affected by the events...
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..."kernel" related to an operating system. 2. Find a definition of the term on a credible website and post the definition or a link to the definition in your response. 3. Evaluate the definition in terms of its effectiveness for the audience. Give us your reasons for why the definition is effectiveness or not. This term is introduced to accounting students on their first introduction to accounting classes and it is also mentioned on the major headline news such as the Enron and WorldCom financial fraud cases. This term, although its main audience is people in the accounting field, has become very effective due to the major financial fraud cases such as Enron, WorldCom, Bernard Madoff and others. The main audience for this term are individuals who are related to the accounting field. Learning that an organization has been cooking the books instantly portrays that a financial fraud has occurred. Also, this term has become a part of the English language due to the major financial fraud cases such as Enron, WorldCom, and Bernard Madoff. This term is effective in its way that it portrays that when it is mentioned that when an organization is cooking the books Accountant students are introduced to this term on their first introduction to accounting classes and 4. Select at least one other response--try a response for a definition not related to your major or field of study/work--and see if you understand the definition. Post your thoughts about the definition in a...
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...Planning Paper WorldCom or “MCI Inc.” (Presently) was a telecommunications company founded in 1983. The company began as Long Distance Discount Services, Inc. (LDDS) and was based out of the state of Mississippi. The company became publicly owned corporation by 1989 as a direct result of the merger between themselves and “Advantage Companies Inc”. It was at this time the company took on a new name (LDDS WorldCom). The primary function of WorldCom at the time was to provide long distance calling and was at one point the second largest company doing this, outmatched only by AT&T. Early on WorldCom was portrayed as very promising company that made its way to the top by merging and purchasing smaller companies in order to spread their control throughout the country and more. The management team of WorldCom, led by their chief executive officer (CEO) Bernie Ebbers was so undeniably powerful and strategic that at one point almost performed the largest merger in history with Sprint but the proposal was thought to be something of a “monopoly” and thus never had the opportunity. Towards the end of their promising run WorldCom was estimated to be worth upwards of $20 billion. Although the company was thought to be something of a “titan” among telecommunication companies it was later brought to the attention of the world that many of its management members as well as Mr. Ebbers were involved in fraud. Mr. Ebbers who was thought to be something of a genius for making WorldCom a “powerhouse”...
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...Shiqi Wang ACCT 4456 Professor Steve Jensen September 22, 2015 WorldCom Case Analysis According to the section 301.4 of Sarbanes-Oxley Act of 2002, each audit committee shall establish procedures for complaints regarding accounting, internal accounting control, and auditing matters, and the anonymous complaints regarding questionable accounting or auditing matters. However, in this case, the WorldCom Company did not have the procedures for anonymous complaints, so Cynthia Cooper decided to go over Sullivan’s head and reported her findings to the audit committee. This was a huge gamble for her and was risking her career. Section 406 of the Sarbanes-Oxley Act of 2002 requires the disclosure of the code of ethics for senior financial officers. The commission shall issue rule to adopt a code of ethics, and if not, reasons must be disclosed. Also, section 406 defines “code of ethics” and requires the commission to disclose its changes of the code of ethics. The Sarbanes-Oxley Act was developed after a series of financial fraud events to prevent fraud incidences. In my opinion, Sarbanes-Oxley Act has an effect in preventing fraud incidences from occurring. First, it gains people’s awareness of ethical issues and consequences they will face in a company when they are in an ethical dilemma. Thus, the act provides a guide for the direction of managers’ behavior. Second, not only in the WorldCom case, but also in other financial fraud events that occurred during 2001 and 2002,...
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...of a dividend the employees get more stock. Then all of a sudden one March morning all these millionaire managers wake up to discover they are not only now worth just a few hundred bucks, but that their jobs were disappearing. This situation was a reality for many WorldCom workers, because on that March morning America’s largest fraud at the time had been reported. WorldCom was a publicly traded corporation established in 1983 to provide Long Distance Discount Services (LDDS) (Internet Services, 2011). Through the acquisition of other businesses Worldcom became the world’s second largest telecommunication company. LDDS began by leasing a wide-area telecommunications service (WATS) line and resold time to other businesses (Internet Services, 2011). WATS is a form of fixed-rate long distance telecommunication service in which certain area codes, such 800, 888, or 877, are reserved for businesses and when customers call these numbers they are not charged for long-distance but rather the business is charged as a subscriber of the WATS service (Rouse, 2006). Beginning in 1988, LDDS began growing through the acquisition of other companies such as Telephone Management Corp., National Telecommunications, IDB WorldCom, and WilTel Network Services (Internet Services, 2011). In 1989, LDDS went public through the acquisition of Advantage Companies Inc....
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...Corporate Scandals And Regulations February 18, 2014 Introduction In recent years there has been many different regulations that have been put into effect to avoid any more accounting scandals. Some scandals that has gotten worldwide attention would be scandals such as WorldCom, Enron and Avon. These regulations have been put in place to help investors and to prevent companies from being put in situations where a scandal could arise. Companies need to pay close attention and follow the regulations or there can be stiff penalties and consequences against both the employee and the company. There are debates on whether there should be more or less regulations regarding accounting and finance. Whether more or less regulations are put in place employees and companies need to make sure that the obey the regulations. Some of the regulations that have been put in place are the Securities Act of 1933 and 1934 and also the Foreign Corrupt Practices Act of 1977. Regulations I think that regulations need to be monitored and controlled better. I do not think that necessary more regulations need to be put in place. Just enacting more regulations does not do anything if they are not enforced and followed. I do not think that there is a need for more regulations but smarter regulations that are enforced. If there are too many regulations then some regulations can be overlooked which then defeats the purpose. Or if there are too many regulations people cannot keep track...
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...1. What are the pressures that lead executives and managers to “cook the books”? There were many pressures that lead managers at World Com to “cook the books”. They all stemmed for the need to reach their goal to be the No. 1 stock on Wall Street, even while the company wasn’t doing very well. Being No. 1 on Wall Street meant they focused on revenue growth which would increase their company’s market value. World Com started facing struggles as, “Industry conditions began to deteriorate in 2000 due to heightened competition, overcapacity, and reduced demand for telecommunications services]”. This forced World Com to reduce prices in order to match their compeititors affecting the E/R ratio. Ebbers pressured senior staff to improve its performance or they would lose everything. The CFO, Sullivan, formulated a plan to use accounting entries to achieve targeted performance and persuaded and coaxed many others to go along with the plan in order to stay on top. 2. What is the boundary between earnings smoothing or earning management and fraudulent reporting? The boundary between earnings management and fraudulent reporting can overlap at times. Earning management is defined as the use of accounting techniques to produce financial reports that may paint an overly positive picture of a company's business activities and financial position. Earnings management takes advantage of how accounting rules can be applied and are legitimately flexible when companies can incur expenses...
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...[pic] WorldCom Case Study FINC 621, Summer 2015 by Hailun Cao Mohammed Altuwaijri Papamagatte Diagne Qian Dou David Ballantine Yanchao Wu Strategic Analysis – Hailun Cao Bernie Ebbers, the chief executive officer, focused on acquisition business strategy. Major Acquisitions includes Advanced Telecommunications Corporation, IDB Communications group, Metromedia Communications Corporation and Resurgens, and Williams Telecommunications group (WilTel). All these firms perform different characteristics in the telecommunications industry. WorldCom faced some issues and WorldCom tried to manage these issues through the expansion business strategy. From the view of risk control, WorldCom met and solved challenges in the following aspects. Firstly, because of the increasing competition, increasing commoditization and low switching costs of long distance service, the long distance calls dropped obviously and long distance firms faced huge pressures under this circumstance. Therefore, WorldCom made acquisition of MCI in 1997. WorldCom made this decision through three main reasons. At first, since WorldCom was the No. 4 long distance provider and MCI was the No.2 long distance provider, the combination of the two firms could occupy 25% share in the U.S. long distance market. This situation consolidated WorldCom’s competiveness in such a depressing environment and decreased the risk in the long distance service market. In addition...
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...Name: University: Course: Date: ORGANIZATION OF WORLDCOM WorldCom is accredited as the United States giant in the world of business. The company started its operations under the name of Long Distance Discount Services Inc. (LDDS) back in 1983. Six years later, it merged with Advantage Companies Inc. thereby going public under the name of LDDS WorldCom. This was later transformed to WorldCom. The company experienced rapid growth through the 1990s and when it purchased MCI in 1998, it was approaching the top. There were plans by the management to have the largest merger by communications companies but the US department of justice and the European Union foresaw an eminent period of monopoly, they stopped the move. Some companies were therefore left out in the merger of 2000. The company however experienced the biggest bankruptcy and accountancy fraud in corporate history. WorldCom was compelled to change its name MCI, one of the companies it had purchased. On 14th February 2005, Verizons agreed to acquire MCI, formerly WorldCom. (http://www.usatoday.com/money/industries/telecom/2002-07-21-worldcom-chronology_x.htm) WorldCom since then has been operating under the banner of Verizon Business. The planning function of the management is guided by some key principles: The ethics principles ensure he privacy and security of customers’ data. At all levels transparency in financial accounting must be practiced to avoid another scandal. Innovation is...
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...WorldCom: The Scandal that Shocked the Nation By: Eric Dixon FSAAC_624_OL2 November 23, 2011 Professor Stephen Oliner Table of Contents Executive Summary…………………………………………………………Page 2 Corporate Environment……………………………………………………...Page 4 Types of Fraud Committed.…………………………………………………Page 5 Board of Directors Responsibility…………………………………………...Page 6 Internal Auditors Responsibility…………………………………………….Page 7 Conflicts of Interest………………………………………………………….Page 7 Collusion…………………………………………………………………….Page 8 Complicity of Auditors and Investment bankers …………………………...Page 9 Sarbanes Oxley-Act……………………………………………………….....Page 9 Recommendations……………………………………………………………Page 10 Re-establishing WorldCom………………………………………………….Page 11 Glossary………………………………………………………………...……Page 12 Appendix…………………………………………………………………….Page 13 Web Site Resource Summary……………………………………………......Page 14 Executive Summary In the late 1990’s WorldCom was regarded as one of the largest long distance phone companies. WorldCom stormed and dominated the telecommunication industry by completing sixty-five significant mergers and acquisitions. These mergers put WorldCom in debt of $41 billion dollars, which the Board of Directors was unaware of. By obtaining these companies WorldCom made themselves a favorite on Wall Street and to numerous investment bankers. Management didn’t know the complications that would arise when trying to integrate several different billing systems. Chief Executive Officer Mr. Ebbers kept...
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...Introduction 1 2.0 Discussions 3 2.1 Leadership and Culture 5 2.2 Internal Control 8 2.3 Internal Audit 13 2.4 External Audit 16 2.5 Board of Director (BOD) 19 3.0 Conclusion 21 4.0 Biliography 22 1.0 Introduction WorldCom is a profit organization that specialized in local, long distance and international plans, high cable internet, prepaid cards, and provided telecommunications to customers nationwide with business corporations making up the majority of the 20 million customers they served. LDDS began operations in 1984 offering services to local retail and commercial customers in the southern states. It was initially a loss making enterprise, and thus hired Bernie J. (Bernie) Ebbers to run things. It took him less than a year to make the company profitable. By the end of 1993, LDDS was the fourth largest long distance carrier in the United States. After a shareholder vote in May 1995, the company officially came to be known as WorldCom. WorldCom primary business goal was to achieve long term revenue-growth by maintaining the achievement of E/R ratio. However, the industry began to deteriorate in 2000 due to economic recession and other reasons, such as overcapacity and heightened competition. Despite the falling in revenue, the management of WorldCom tend to manipulate the accounting entries by accrual releases and capitalization of line cost in order to achieve the targeted performance. The scheme lowered line costs (the company’s largest single expense) by capitalizing...
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...Daniels Fund Ethics Initiative University of New Mexico http://danielsethics.mgt.unm.edu WorldCom’s Bankruptcy Crisis INTRODUCTION The story of WorldCom began in 1983 when businessmen Murray Waldron and William Rector sketched out a plan to create a long-distance telephone service provider on a napkin in a coffee shop in Hattiesburg, Miss. Their new company, Long Distance Discount Service (LDDS), began operating as a long distance reseller in 1984. Early investor Bernard Ebbers was named CEO the following year. Through acquisitions and mergers, LDDS grew quickly over the next 15 years. The company changed its name to WorldCom, achieved a worldwide presence, acquired telecommunications giant MCI, and eventually expanded beyond long distance service to offer the whole range of telecommunications services. WorldCom became the second-largest long-distance telephone company in America, and the firm seemed poised to become one of the largest telecommunications corporations in the world. Instead, it became the largest bankruptcy filing in U.S. history at the time and another name on a long list of those disgraced by the accounting scandals of the early 21st century. ACCOUNTING FRAUD AND ITS CONSEQUENCES Unfortunately for thousands of employees and shareholders, WorldCom used questionable accounting practices and improperly recorded $3.8 billion in capital expenditures, which boosted cash flows and profit over all four quarters in 2001 as well as the first quarter of 2002. This disguised...
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...Insight on WorldCom Scandal Table of Contents ABSTRACT 2 The importance of accounting conceptual framework 3 Historical Background 5 The Scandal – what happened 6 PENALTIES 7 How the scandal relates to accounting theory 8 RELATION TO POSITIVE ACCOUNTING THEORY 9 Conservatism Principle 9 Lack of Reliability 10 Lack of Relevance 11 Financial Misstatement 11 Conclusion 12 Bibliography 14 Insight on WorldCom Scandal ABSTRACT The scope of this paper deals with the WorldCom accounting scandal of the early 2000’s as it relates to elements of accounting theory. The discussion will cover the key reasons that contributed to the collapse of WorldCom. Specifically, this paper will look at: Executive compensation, Earnings Management, and Information Asymmetry. The authors will present arguments that clearly show how each of these three sub-topics played a pivotal role in the scandal. The reader will also see how these reasons are often inter-related, and often overlap each other, the enormity of which caused the company to fall like a stack of dominoes. In particular, information asymmetry was allowed to flourish as the WorldCom executives lavished themselves with huge compensation, all the while keeping the board of directors and investors out of the loop. A poor corporate government structure existed as the board was filled with inept and ineffective individuals who were powerless to stop the pilfering of profits. The end result of these actions...
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...or Guilty: Bernie Ebbers Part in the Downfall of WorldCom The story surrounding the failure of WorldCom in the early 2000's is one that still haunts the financial market to this day. We often hear accounts of what happened within the telecom giant, but only one person could give a first-hand account of what she observed being the on the frontline and discovering one of the nation's biggest financial scandals of the last quarter century. Cynthia Cooper's account of her internal audit experience within WorldCom paints a bigger picture of what the scandal was like, how it was discovered, and who may have been involved. Even though we all know CEO Bernie Ebbers as the man behind the explosive growth of the firm, there still remains a lot of suspicion surrounding whether or not Bernie knew about the downfall of the firm. It is reasonable to believe that because he was WorldCom's main man, he would have known about the financial statement fraud that was occurring. But after reading Cooper's account of what occurred within the firm, I have to conclude that he didn't, in fact, know that CFO Scott Sullivan was instructing the accountants to cook the books. "Bert C. Roberts's testimony for the defense at Ebbers's criminal trial was in contrast to Sullivan's assertions earlier in the trial that he repeatedly told Ebbers in 2000 through 2002 that the company's accountants were making "adjustments that weren't right" in response to Ebbers's demands to "hit the numbers" for revenue...
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