Financial Reporting Case Study Example | Topics and Well Written Essays - 2000 words

Financial Reporting - Case Study ExampleIn a brief history of the cases, Enron, On October 16, 2001 Enron declared to SEC a net loss of $ 618 jillion for the third quarter effectively reducing share holder equity by $ 1.2 billion. SEC open enquiry the very next day and called for details from Enron officials who in turn nonified their Auditor Arthur Andersen. Pursuant to this, Andersen had his group destroy Enron-related documents. As a result, Enron, Andersen and his lead partner Duncan were convicted of obstruction of justice. Enrons Chief Financial officer approach indictment on 98 counts of boloney and related offences. BesidesEnron is now bankrupt, and civil and criminal investigations hide to examine Enrons complex accounting practices and byzantine financial schemes. (Brickey) Close on the heels of Enron episode, WorldComs fraud surfaced dwarfing the former. Both the cases mingled accounting frauds with the companies managements sole aim of keeping the share prices hig her in spite of huge losses which they covered by manipulation of accounts. But for the whistle blowers from both the corporations, the frauds would not have come to get by though bubble would have ultimately burst by the operation of economics. But more capital would have been swindled, more would have fled the scene had it not been for the whistle blowers who had little protection prior to Sarbanes -Oxley enactment. Sherron Watkins, a Vice-President at Enron who discovered accounting fraud disclosed it to its Chairman Ken Lay in volt memos detailing Enrons off-book partnerships, special purpose entities and urged him to disclose accounting irregularities. Though he agreed to engage a law firm to conduct preliminary investigation, he appointed the firm of Vinson & Elkins in spite of Watkins advice not to engage them as they were also party to structure some of the questionable deals. And the law firm not surprisingly gave clean chit to the questioned transactions. Watkins prefe rred to depose before congressional hearings probing the Enrons affairs. Similarly Cynthia Cooper, Vice-President, indispensable Auditing, WorldCom exposed a larger accounting in her corporation when she came to know of a sample dishonest transfer of $ 400 zillion from Reserve account to inflate the corporations earnings. Here again Arthur Anderson was the Auditor for the corporation. era he tried to convince her by insisting no abnormality, the CFO Scot Sullivan literally tried to quiet down her. (Ripley Amanda) She therefore independently conducted inspection of account books and found that the management had capitalised operating expenditures and converted a $662 million loss into a fictitious $2.4 billion profit.CFO Sullivan learnt of her attempts to unearth such manipulations and warned of her dismissal if she did not stop. After pass to the audit committee, she and her audit team remained hopeful that they could find something they might have missed that would explain th e unpredictable accounting. But Coopers hopes were dashed when she confronted WorldCom Controller David Meyers, who conceded that the entries could not be justified. (Brickey) The charges against Andersen were that he had knowledge of accounting irregularities at Enron, and fraud relating special purpose entities used by Enron, that he hired an out-side law firm in foresight of