The Enron and Worldcom Scandals

1009 Words Feb 6th, 2012 5 Pages
The Enron and WorldCom scandals

Enron
#1. The segment that put Enron in difficulties was the LJM1. That SPE was the worst of all four SPE’s. This one had no independant investor that could put up the 3% that they needed for the controlling investor, where CHEWCO would work as a counterparty accounting to the U>S> guidelines. Enron already owned 97% of CHEWCO, where if they had a controlling investor, the profits from CHEWCO would go directly to Enron’s assets. Later, they did not find a controller investor, and invented another SPE, which was LJM2. The problems in LJM1 still was there that affected LJM2. Arthur Anderson, the auditor for Enron, went ahead and approved of this SPE, knowing that the financial statements had
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WorldCom

#1. In the general ledger of WorldCom, they were supposed to reduce the line cost expense accounts and reducing- in accounts corresponding to the improper and false line cost expense in various reserve accounts. This would through off your balance sheet and your income statement, showing you made profits, which indeed, you never did. Later, the senior management would instruct that the line cost expenses are fraudulently be reclassified. By doing this, they had to adjust the schedules of certain Property, Plant and Equipment Capital expenditure accounts by increasing certain capital accounts for “prepaid capacity”. In the future periods, the increase of these certain accounts for “prepaid capacity” would then remain manipulation of choice by Ebbers, which would add to their profits.
#3. WorldCom’s board of directors should have reduced the conflicts of interest, so they could exercise the fundamentals of ethics to the shareholder’s or company and to the public’s interest. They could have ensured that financial reported were accurate, complete, understandable, and transparent. The directors should have also ensured that the accounting standards were adequate to protect the investor’s interests.
#4. Lay may never been an accountant, but a milkman, but he was assisted in all of these manipulation by his Chief financial officer and his Controller , which both men worked for Arthur

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