Worldcom Creative Accounting

In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial

Fraser, L. M., & Ormiston, A. (201). Understanding financial statements (9th ed.). Upper Saddle River, NJ: Prentice Hall.

When analysts question a firm’s earnings quality, it raises concerns regarding under or over aggressive accounting practices that may be allowing the firm to manipulate the earnings. Earnings quality is defined as the strength of the current earnings in being used to predict future earnings and cash flows. Since earning quality is indicative of future performance, analysts are more likely to address issues that have substantial impact on the earnings quality. An issue arises when the nature of the earnings is questioned. While permanent earnings are part of normal operations, any irregular, one time earnings can skew the earnings, making the firm look more profitable than it is. This is due to the inability to recreate similar one-time transactions that will give rise to such numbers. Investors prefer predictable

According to Financial and Managerial Accounting, the accounting cycle is the approach companies use to create their financial statements

Throughout history and in our own time, legitimate accounting methods have been utilized to fraudulently engage in manipulating activities that results in illicit gains to the perpetrators and losses to individuals and financial institutions.

SUMMARY OF STUDY OBJECTIVES 1Identify the sections of a classified balance sheet. In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; and intangibles. They classify liabilities as either current or long-term. A stockholders' equity section shows common stock and retained earnings. 2Identify and compute ratios for analyzing a company's profitability. Profitability ratios, such as earnings per share (EPS), measure aspects of the operating success of a company for a given period of time. 3Explain the relationship between a retained earnings statement

The use of financial ratios assists the auditor in analyzing any unusual deviations from the expected results, (Gupta, 2004). The financial ratios are then compared with the entity 's ratios for prior periods as well as with ratios for other businesses in the same industry. A comparison with the industry ratios would have warned BDO of some irregularities in Leslie Fay 's financial statements. BDO Seidman should have been interested some important ratios that would help in determining the accuracy of the financial statements that had been prepared by Polishan and his staff. The important ratios include the liquidity ratios, the profitability ratios and the operating ratios, the

Fictitious reductions of expenses improve the bottom line on financial statements and can mask true losses and debt. (Crumbley, Heitger and Smith, 2013). An airline has a large fleet of aircraft that require extensive routine maintenance costs. In times of unprofitability, the airline might improve earnings by recording additional upgrades to planes as expenses by deferring losses to future periods. GAAP section 39.200 provides details around how capital assets should be recorded on the balance sheet and the associated depreciation should be recorded (GAAP, 2015).

The purpose and goal behind researching the income statements and balance sheets then calculating the ratios is mainly to help creditors and investors make their decisions easier and faster. The way we are presenting our research results helps the investors and creditors make the decision which of the companies is more worthy to invest in or loan money too without taking a risk, and lowering the chances that they will be disappointed by the results of their investment, or in the creditors case they can be almost certain the company they are loaning the money to would be worthy enough of paying the money back without a hassle.

As the business environment grows and companies find new ways to expand into their respective - or even new – markets, it is important that reporting standards stay up to date with changes and continue to assist companies in providing their users with useful accounting information. Information is labelled as being useful when it meets the

In this case the concentration is on “Company Performance Measurement”, using the “Ratios”, ‎before we answer to the question, we have to focus a bit on the “Financial Ratios”‎

Firms and Companies include ‘Ratios’ in their external report to which it can be referred as ‘highlights’. Only with the help of ratios the financial statements are meaningful. It is therefore, not surprising that ratio analysis feature are prominently in the literature on financial management. According to Mcleary (1992) ratio means “an expression of a relationship between any two figures or groups of figures in the financial statements of an undertaking”.

Nowadays, as our economy is facing possible everyday crises, managers undergo an increasing pressure in order to keep their company 's earnings stable. Shareholders and analysts expect companies to meet forecasted goals and not to deviate from these. Especially, reliable companies are to report positive results and shall not present any 'surprises '. Managers therefore often turn to their accounting departments for help, whose job it then is to improve the bottom line by changing the information shown in financial

Seeing that financial ratios depend on the financial data of companies which are influenced by their accounting practices and procedures, information can be distorted and render the comparison of ratios less useable. Also ratios indicate on overall result for a period (financial year) but do not explain how this was achieved in detail and what factors favorable or unfavorable contributed to its

This paper will discuss the corporation WorldCom, a telecommunications company that was based in Mississippi. In 2002 WorldCom was involved in one of the largest accounting scandals in the United States. WorldCom inflated its assets by nearly $11 billion dollars, which eventually lead to about 30,000 employees losing their jobs, as well as, 180-billion dollars in losses for its investors. The CEO at the time of this accounting fraud was Bernard Ebbers and led to him receiving a 25-year prison sentence. This paper will go into the details of how WorldCom was able to manipulate its accounting records to deceive its internal auditors, as well as, investors.