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Anonymous
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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?

Answer all questions in one thread, and comment on at least three other classmates' posts.

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First people: 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? Both WorldCom and Enron have deceived the public with how well or poorly they are doing as a firm. They publicized inflated profits and hid their losses. This made the firms look good and prompted investors to continue to pour money into their organizations. The public financial statements provided could not have warned investors of the fraudulent activity because the information on them had been falsified. These scandals could have been prevented with a simple auditing of the company’s finances. An audit would have shown where money was really going and how much of it they actually had on hand. Management could have prevented the scandal by changing accounting policies, such as a separation of duties, these small changes could have kept everyone honest. Second people: 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? These companies used special purpose entities to try and hide losses and debt. They falsified information on their financial statements and showed expenses as investments in an attempt to make their company appear profitable. Unfortunately the financial statements available to investors couldn't have warned them about the fraud because they had been prepared with inaccurate and misleading information. Yes the Enron debacle could have absolutely been prevented. The company should have used independent auditors instead of using accountants as consultants which translated to a conflict of interest. Third people: Enron and WorldCom inflated their cash flows and hid their expenses on their financial statements. The companies were reporting millions of dollars in profits, but they were really losing millions. They covered the loss up by making operating costs, such as maintenance, look like capital investment on the books. It looked as if the firm was investing in their future growth, but they were barely staying afloat. They made the company look good to investors, so they would buy stocks. The stocks were selling close to $100 per share and after the damage took place, the stock price drops to pennies. The financial statement would have contained clues that could have warned investors of the fraud that was taking place, if they had not been altered. Arthur Andersen LLP, was the accounting firm for Enron and was one of the “Big Five” accounting firms. Arthur was actually known for his honesty and integrity, yet auditors failed to detect, ignored, or approved accounting frauds for clients paying lucrative consulting fees. The two companies were corrupt and many of the employees knew fraud was being committed. The employees that wanted to speak up and report the scandal, were nervous about losing their jobs and retaliation. The companies should have had better practices and guidance for the accountants. The two firms needed a better culture for their organizations. There is too much pressure to show profit for stockholders and it can cause individuals to make unethical decisions. The Enron and WorldCom scandals are the reason there are laws in place to prevent this from happening again, which include The Sarbanes-Oxley Act of 2002 and protections for whistle blowers. The WorldCom accounting scandal. (2017, May 22). Retrieved from https://www.stabroeknews.com/2013/features/10/28/worldcom-accounting-scandal/ ...
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DoctorDickens
School: New York University

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Running Head: ECONOMICS DISCUSSION

Economics discussion
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ECONOMICS DISCUSSION

2

The two companies WorldCom and Enron retained their operational expenses as being
investments by classifying them on the balance sheet and avoiding the inclusion of expenses
on the income statement so as to end up inflating their income (Agrawal, 2017) this led to
gradual depreciation of costs on the companies rather than deducting them as operating expense
at once. Through this process, profit margins, net income and cash flows faced exaggerated
inflation. The financial statem...

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Anonymous
Tutor went the extra mile to help me with this essay. Citations were a bit shaky but I appreciated how well he handled APA styles and how ok he was to change them even though I didnt specify. Got a B+ which is believable and acceptable.

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