Question

Summarize the events of a recent accounting scandal. Identify how the illegal or unethical act was detected and describe the punishments that resulted (fines, prison terms, etc.). Consider what could have been done to detect this act earlier or to prevent it from happening in the first place.

Answer 1

ANSWER:

The Top Ten World’s Corporate Scandal with reasons & punishments given to the people involved:

1.     Waste Management Scandal

In this, Founder and auditor were found guilty of falsely increasing the depreciation time length for their properties, plant & machinery in their balance sheet.

They reported $1.7 billion in fake earnings. The act was detected by new CEO & management team. The case was settled by imposing fine on the auditors of $ 7 million&paying the shareholders $457 million

2.   Enron Scandal

In this CEO was found guilty; he kept huge debts off the balance sheet.

The shareholders lost in billions, employees and investors lost their retirement accounts &many employees lost their jobs. The act was detected by internal whistleblower. The CEO was imprisonment for 24 years. The company filed for bankruptcy.

3.      WorldCom Scandal

In this, line costs were under reported, by capitalizing the cost rather than expensing and revenues were inflated with fake accounting.

It resulted in inflated assets & lead to loss of jobs & losses for investors. The Company’s internal audit department uncovered $3.8 billion of fraud. CEO was sentence to imprisonment for 25 years and CFO was fired.

4.      Tyco Scandal

In this money was smuggled out of the company in the form of executives’ bonuses or benefits. The main person involved was CEO.

The income was inflated by millions; CEO and CFO stole millions from the company. The act was disclosed by SEC & investigations uncovered questionable accounting practices.

CEO and CFO were imprisoned for 25 years & lawsuit forced company to pay to investors.

5.      Health south Scandal

CEO told underlings to make up the numbers & transactions from 1996-2003

In this earnings were apparently inflated to meet the stockholder’s expectation. The act was caught by SEC. CEO was sentenced to imprisonment for seven years.

6.      Freddie Mac Scandal

Many top officials were involved; company misstated & understated the earnings on the books internationally.

The earnings were misstated. SEC investigated the case. Fine of $125 million were imposed on CEO, CFO and other officials.

7.     American Insurances Group Scandal

In this loans were booked as revenue, it directed clients to get insured with whom AIG had payoff agreements, and told traders to inflate AIG stock price.

It was triggered by whistleblower & SEC investigates the same. The case was settled with SEC in 1.65 billion and CEO was fired but no criminal action was taken against him.

8.     Lehman Brothers Scandal

In this Lehman Executive & company auditor were found guilty. They sold told assets to the bank with the understanding to buy it back. It created the impression that Lehman has more cash and less in toxic assets.

The Company went Bankrupt. It was forced into the largest bankruptcy in US history. SEC didn’t prosecute the same due to lack of evidence.

9.     Bernie Mad off Scandal

In this investors were paid out return from their own invested money instead paying from profits. The accountant was the main accused.

The accountant’s son reported to the SEC and he was arrested the very next day. He was sentenced to 150 years of imprisonment & fine of $ 170 billion.

10.     Satyam Scandal

In this case the founder was found guilty. They falsified the revenue, margins & cash in the balance sheet.

He himself admitted his fraud in a letter addressing to the Board of Directors. Many charges were made on the founder & his brother, but he was released after the Central Bureau of Investigation failed to file charges on time.

Accounting Scandals can be prevented:

It is always going to be a challenge to prevent adishonest employee from committing a fraudulent act if they have their mind set on it. However, organizations can implement various measures and different systems to help protect themselves from acts of fraud. Document management is one the system that is useful to the prevention of accounting fraud.

The scandals can be prevented if the audit of public companies becomes a federal function. If public companies would be required to buy accounting insurance, it would cover all the possible losses and damage suffered by investors. In order to assess the risk, insurance company will appoint auditors who would be unbiased and will be free to provide opinion on the financial statements.