They created fictitious revenues by a number of means. They prepared phony invoices showing sales which overstated their revenues to show the company was growing faster than they actually were. Their vendors collaborated in the fraud by lying to the auditors when the auditors attempted to confirm some of these receivables. The auditors were not diligent when they verified these invoices. They should have probed further into the vendors to verify that these sales occurred.
Known in this case as Johnson Services which has accumulated significant losses. Issues: 1. Outstanding purchase of stock (a) Mr. Jones would like to know if he should purchase the stock of Smithton outright, leaving Smithton intact. He also wants to know if he issues debt in his Johnson Services to pay for the Smith Company would that raise debt to equity issues (b) Mr. Jones also wanted to know should he convert Smithton to an S Corporation and change the fiscal year to a calendar year. (c) Mr. Jones also asked what are the potential tax ramifications that exist for
In the case of rising interest rates the company is exposed to a considerable risk. Therefore a short hedge is necessary. This strategy offsets any possible loss of rising interest rates by gains in the futures position. Due to the fact, that the certificates were priced at a fixed spread over T-bills the T-Bill future represents the appropriate hedge instrument. Another argument in favour of hedging is that the company is able to focus on their core business instead of focusing on the market movements of the underlying asset.
The ultimate goal is to protect investors. Reason Many acts of corporate corruption in the 1990s and early 2000s brought on this regulation. There were many loopholes that allowed for accounting errors without any legal incentive to correct the problem. Due to the accounting practices at companies such as Enron, Tyco, and WorldCom investors lost billions. The accounting practices created a scandal in which the companies were able to hide information from investors.
He took his business into the commercial field. What have we done to ourselves? As a class we talked about greed and how greed often motivates our financial decisions. We also discussed ethical responsibility in business. I think the best step forward would be to, on a national scale, adjust living standards downward.
Separate Transaction reasoning: There are three main reasons why the Veritas shares should be divested in a separate transaction. The first one is to escape tax. Separating the deal in different transactions, and using a tax-free stock swap, implies that stocks are not sold ( if company as a whole were to be sold ) , therefore escaping from a huge tax liability bill. The second one it’s obvious. The value to the separate transitions would be higher than a combined one.
Ethicality of Accounting Activities The WorldCom case is an example of unethical behavior performed by a company by abusing accounting activities to reflect misleading financial information. In this case the main cause of this unethical behavior is greed and neglect by the executives that allowed and encouraged this behavior. On the other hand, WorldCom employee Cynthia Cooper is a prime example of ethical behavior that took place to uncover the wrong doing of individuals. Upon reading an article of a former financial analyst, Cynthia Copper’s mind was intrigued, an audit was conducted on capital spending. In the WorldCom and Cynthia Cooper case unethical behavior was evident in multiple departments and involved top key players that tried to cover up the fraud.
Key Accounting Activity Involved The key accounting activity involved in the case of Cynthia Cooper and WorldCom was capital expenditures, which is defined as “…the funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment” (Capital Expenditure - Capex, 2013, para. 1). In this case, the capital expenditures were used as corruption to journalize large amounts of money incorrectly, as prepaid capacity, and moving from account to account (Mintz & Morris, 2011). This caught the attention of an internal auditor that started digging to found where the money was going. The prepaid capacity was used to cover the true nature of the expenditures, moving large amounts from the income statement to the balance sheet (Mintz & Morris, 2011).
Due to this, the investment made can create principles losses during downturns and in the cycle of the business. It would definitely create a lot of panic in the people, regarding their own pensions, during the time of recession. Therefore, it would be more appropriate for the government to adopt “pay as you go” system, which really means that its premiums are invested in the treasuries of the US or any other country. As the federal government can increase the amount tax collected, can take loan, or can even print money (if required), the “pay as you go” system is the best and appropriate alternative. By adopting this method of funding its premiums, the government can make sure, that all the policies generated by them are being fulfilled.
His strategy was to expend through aggressive acquisitions. In this case, we will answer some questions such as which functions of worldcom were the problem and discuss those problems, why following orders is not an excuse for breaking the law, what is Cynthia cooper doing after the fall of worldcom and what would have been another way to resolve the problem. Worldcom set world records for the largest company to ever go bankrupt, and for the largest accounting fraud. The top departments of the whole issue were the management and the accounting departments. The objective of managers is to maximize share holders values, the management department failed to fullfil investors goals .