Description
The WorldCom and Enron accounting scandal involved the firm classifying operating expenses as capital investments. Discuss the impact on Enron and WorldCom's operating cash flow and their overall cash position. Did the financial statements contain any clues that could have warned investors of the fraud? Might there be broader market implications from Enron's failure? And could the Enron debacle have Been Prevented?
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Running Head: WORLDCOM AND ENRON CORPORATE ACCOUNTING SCANDAL
WorldCom and Enron Corporate Accounting Scandal
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WORLDCOM AND ENRON CORPORATE ACCOUNTING SCANDAL
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Discussion
The case of Enron and WorldCom present some of the world’s most serious corporate
accounting scandals of all time. The case of Enron and WorldCom showcases the implication of
manipulation of financial statements of the company. After the merger with a Texas based
company, Enron started generating year-after-year profits for investors. The continuous growth
in profit attracted many investors making the company’s name to appear in the Forbes list of
Fortune 500 companies (Brickey, 2003). In less than one year, things started turning for Enron as
the company had gone from being one of the most profitable to filing for Bankruptcy protection.
Following an inquiry by the SEC, it became evident that the company executives had
exaggerated the company earnings and instead of taking profits, the company had actually been
posting losses amounting $586 million. Within a year, the stock value of the company had
depreciated from high of $90 to $ 1 per share. In December, 2001 Enron filed for bankruptcy
protection (Brickey, 2003). Seven months later, the case of WorldCom emerged. WorldCom
filed expenses as capital investment resulting to overstatement of the company’s profit in tune of
over $3 billion and reporting a profit of ov...