Question

Hello, I need some help with this discussion question. It should be a detailed answer. Thank you!

The statement of cash flows has traditionally been thought of as the fraud-proof statement. Usually, it is the statement that is most difficult to fudge, explain why that is?  WorldCom changed everything in the early 2000s. WorldCom had reclassified $3.8 billion in expenses as capital purchases. What were they trying to accomplish on the statement of cash flows? On the income statement? What happened to WorldCom, its officers and Arthur Anderson, and its auditor?

Answer 1

Statement of of cash flow is not easy to manipulate because it is not based on predictions and assumptions. it is based on the cash flow received, and those cash flows are to be recorded who are actually received so this is not a statement based on the assumptions and other window dressing techniques so this is a complete true reflection of the realisations made by the company and it is very difficult to fudge.

Worldcom frauded in 2001 by window dressing of its accrual expenses and they inflated their revenues and inflated their profits and they did not book their cost and they did not book loss while the investors were kept in dark that the company is making profit and once the real accounting was done, the company went bust.