Question

You just learned about WorldCom's accounting scandal that misled investors by artificially inflating net income and cash flow from operations. What is another example of an accounting scandal you have heard of? Did the scandal involve the manipulation of the Statement of Cash Flows, or something else?

Answer 1

Another example for an accounting scandal is tyco scandal 2002. Tyco international was an American blue chip security sustems company based out of Princeton, New Jersey. In 2002, it was discovered that CEO Dennis Kozlowski and CFO Mark Swartz had stolen over $150 million from the company and had inflated the company’s earnings by over $500 million in their r eports. Kozlowski and Swartz had siphoned off money using unapproved loans and stock sales.

The scandal was discovered when the SEC and the office of the District Attorney of Manhattan carried out investigations related to certain questionable accounting practices by the company. Kozlowski and Swartz were both sentenced to 8 to 25 years in prison. A class action suit forced them to pay $2.92 billion to investors.

When you review a company's Balancesheet and Income statement, you run into a breakdown of cashflow. Ostensibly, the cashflow is the difference between how much money is generated versus how much is spent on operations. A better cash flow can result in ratings ans lower interest rates. Study a company's cash flow under operating cash flow entry.

This is in the cash flow statement, which is presented after the income statement and the balance sheet. Operating cash flow can be distorted in several different ways.

1. Changing accounts payable

2. Misusing non operating cash

3. Receivables and Cash flow

4. Selling accounts receivable

Scandal not only involve in manipulation of cash flows but also doing unethical and/or illegal actions. This often becomes a wide public incident. Typically there are questions about the corporation's actions, which are either allegedly illegal or actually proven to be illegal. Corporate scandals are therefore brought about from allegations about ethical practices or behaviors, by legal action or decisions, or a combination of the two. They may also be due to persons within a corporation acting on his or her own behalf with or without regard for the company.