Question

“Rules and regulations for the accounting profession are made to be broken, not followed.” Using at least three current (within the last three years) instances of rule violations in business and/or accounting, write at least 4000 words

Answer 1

The following are the 3 instances of rule violations in the business/accounting world by high profile individuals:

Kenneth Lay - Enron

Enron's downfall, and the imprisonment of several of its leadership group, was one of the most shocking and widely reported ethics violations of all time. It not only bankrupted the company but also destroyed Arthur Andersen, one of the largest audit firms in the world.

The Securities and Exchange Commission (SEC) announced in 2001 that it was investigating the accounting practices of Enron after several years of questions raised by analysts and shareholders. The resulting disclosures and write-downs by the company reduced investor confidence and the company's credit rating, leading to thebankruptcy in December 2001. The SEC announced that it would pursue charges against Lay, former CEO Jeffrey Skilling, CFO Andrew Fastow and other high-ranking employees.

The charges related to knowingly manipulating accounting rules and masking the enormous losses and liabilities of the company. Lay and Skilling were tried together on 46 counts, including money laundering, bank fraud, insider trading and conspiracy. Skilling was convicted on 19 counts and sentenced to over 24 years in prison.

Lay was convicted on six counts of fraud and faced up to 45 years in jail. Lay died in 2006, three months prior to his sentencing hearing. The resulting investigation of the Enron scandal resulted in Congress passing the Sarbanes-Oxley Act to improve corporate accountability. (Read More: Fat Cat CEOs)

Bernard Ebbers - Worldcom

As the SEC was conducting its investigation of Enron, an even larger CEO ethics violation was brewing. Worldcom, which at the time was the United States' second-largest long-distance telecommunications company, entered into merger discussions with Sprint. The merger was ultimately dashed by the Department of Justice over concerns about it creating a virtual monopoly. The situation took its toll on the company's stock price.

CEO Bernard Ebbers owned hundreds of millions of dollars in Worldcom stock, which he margined to invest in other business ventures. As the stock price dropped, banks began demanding that Ebbers cover more than $400 million in margin calls. Ebbers convinced the board to lend him the money so that he would not have to sell substantial blocks of stock. He also began an aggressive campaign to prop up the stock price by creating outright fraudulent accounting entries. The fraud was ultimately discovered by Worldcom's internal audit department, and the audit committee was informed. The resulting SEC investigation resulted in the company's bankruptcy filing in 2002 and the conviction of Ebbers on fraud, conspiracy and filing false documents charges. Ebbers began a 25-year sentence in federal prison in 2006.

Scott Thompson - Yahoo!

Compared with the other four infamous CEO bad boys on the list, Scott Thompson's transgressions may not seem so egregious. What shocked shareholders and media alike was the brazenness of his deception and the lack of oversight that allowed it to happen. Thompson was brought in as Yahoo's new CEO in early 2012, in an attempt to reverse the struggling company’s fortunes. By May, a shareholder activist group alleged that Thompson had embellished his resume by claiming he had a degree in computer science, along with an accounting degree. He has only an accounting degree.

There are two significant ramifications of the deception, which Thompson characterized as "inadvertent." The first is that it means the board did not fully vet him before hiring. More importantly, because the false information appeared in SEC filings, the company and Thompson himself may face disciplinary or legal action. Thompson voluntarily stepped down as CEO in May.