Corporate Scandals And Allegations Of Fraud

1111 Words Jul 4th, 2016 5 Pages
Corporate scandals and accusations of fraud have amplified intensely over the last decade. The cost of fraud has reached over $400 billion dollars a year, not to mention the loss of investments and jobs. Corporation fraud involves creative, complex methods in which to overstate revenues, understate expenses, over value assets, and underreport liabilities. To hide financial problems, management will manipulate stock prices, minimize taxable income, and maximize compensation. “It 's been my experience… that the past always has a way of returning. Those who don 't learn, or can 't remember it, are doomed to repeat it” (Berry, p. 417, 2009). Enron Corporation, WorldCom, Incorporated, and Global Crossing Limited all claimed bankruptcy …show more content…
Incentives drove auditors’ behaviors to create this hidden fraudulent activity between the client and the auditor. The fear of losing the client almost guaranteed that the auditor would comply with the management’s decisions. Unfortunately, investors placed their faith in the auditors’ reports, which certified the net income was accounted for correctly. With the support of the auditors’ behaviors, these large corporations were able to hide the fraud for a long time.
Enron
Enron kept huge debts off the balance sheets by using off the books partnerships. This company bribed foreign governments to win contracts. Large bank borrowings were fed through fake companies formed by Enron. Money that came from borrowed resources was made to appear as funds resulting from significant trade agreements. Enron 's top administrators were gaining millions in revenue from the funds filled by investors and not from real revenues received (Cantoria, 2010). To hide their actions, vital documents were shredded at the Enron offices and at the Andersen Accounting firm. As 2001 year was ending, the SEC noticed anomalies in Enron 's financial records prompting the instruction of a restatement of the company 's financial records in agreement with generally accepted accounting principles (GAAP) (Ravenscroft & Williams, 2005).
WorldCom
WorldCom inflated assets and hid losses. Instead of recognizing the line costs
Open Document