This document discusses several corporate fraud cases, including Enron, Worldcom, and Parmalat. It provides details on the fraudulent accounting techniques used by Enron to inflate profits and conceal losses, such as manipulating earnings, hiding uncollectible receivables, and concealing failures in business segments. For Worldcom, it outlines how the company misstated cash flow by improperly recording expenses as capital expenditures, and overstated earnings by $7.2 billion total.
Enron was an American energy company that collapsed in 2001 due to widespread corporate fraud and corruption. It had grown rapidly throughout the 1990s to become the 7th largest company in America before filing for bankruptcy in late 2001. Enron used accounting loopholes and off-balance sheet entities to hide billions in debts and losses, and inflated revenue and profits in their financial reports. When the fraud was uncovered, the company quickly unraveled and its stock price plummeted, destroying billions in market capitalization and retirement accounts. Top executives like CEO Ken Lay and CFO Andrew Fastow were later convicted and imprisoned for their roles in the massive accounting scandal.
Worldcom and Enron both engaged in accounting fraud in the late 1990s and early 2000s. Worldcom fraudulently reported $3.8 billion in line costs as capital expenditures instead of operating expenses. An internal audit uncovered the fraud, and Worldcom later filed for the largest bankruptcy in US history at that time. Enron used accounting loopholes and off-balance sheet entities to hide billions in debt and losses. When its stock price declined, Enron's true financial situation was revealed and it filed for bankruptcy in 2001. In response, Congress passed the Sarbanes-Oxley Act to increase accounting oversight and impose harsher penalties for corporate and accounting fraud.
Enron Case Study 971103 [Compatibility Mode]MBA_Community
The document summarizes the rise and fall of Enron, an energy company that went bankrupt in 2001 due to accounting fraud. It discusses how Enron grew rapidly in the late 20th century but was hiding significant losses through fraudulent accounting practices. When these were uncovered, Enron had to restate years of financial statements, lost most of its value, and eventually declared bankruptcy. The accounting firm Arthur Andersen, which had audited Enron, was found to have destroyed documents related to Enron and was convicted of obstruction of justice.
The Arthur Andersen Enron scandal involved accounting fraud at Enron that went undetected by its auditor, Arthur Andersen. In response, the accounting industry implemented several changes, including new auditing standards from the AICPA, the Big Four accounting firms severing ties with Andersen, and new legislation like Sarbanes-Oxley that aimed to prevent future scandals by increasing financial disclosure, executive responsibility, and separating auditing and consulting services. While the fraud was not intended to positively impact the industry, the resulting changes have strengthened accounting practices and improved transparency.
Accounting scandals typically involve executives misusing funds, overstating revenues or assets, or underreporting expenses or liabilities. This can amount to fraud. Common causes include executives temporarily reducing stock prices to facilitate company takeovers for personal gain or feeling pressured to alter financials for personal benefit. Some of the largest corporate accounting scandals include Enron inflating assets by $11 billion, WorldCom overstating assets by $3.8 billion, and Tyco executives stealing $150 million and inflating income by $500 million. These scandals often result in bankruptcy, large fines, and executive prison sentences.
This document discusses the Enron accounting scandal and the roles of key players. Kenneth Lay played a leading role in the corruption at Enron. Jeffrey Skilling, the CEO of Enron, was found guilty on multiple counts of fraud and false statements. Andy Fastow, the CFO, used off-balance sheet entities to hide Enron's massive losses and served prison time. Andersen, Enron's accounting firm, failed to fulfill its responsibilities regarding Enron's financial statements and related-party transactions. The scandal resulted from deregulation, improper accounting of future profits, document shredding, job and retirement fund losses, and Enron sustaining itself through accounting fraud.
Enron was an energy company that collapsed in 2001 due to accounting fraud. The company used complex partnerships and accounting techniques to hide debts and inflate profits. When losses came to light, Enron filed for bankruptcy. Arthur Andersen, Enron's auditor, destroyed documents related to Enron and was later found guilty of obstructing justice. The collapse resulted in thousands of layoffs and more than $70 billion in lost market capitalization.
1) Parmalat was a large Italian dairy company that collapsed in 2003 under billions of euros in debt due to fraudulent accounting practices.
2) Over many years, Parmalat had been using fake transactions to inflate assets and revenues to hide growing debts from poor investments and acquisitions.
3) When the fraud was revealed in 2003, Parmalat owed $14 billion to investors and banks who were complicit and had ignored signs of deception in exchange for large fees.
The document summarizes the rise and fall of telecommunications company WorldCom. It traces WorldCom's history from its founding in 1983 as a small long distance provider to becoming the second largest telecom company by 1998 after acquiring over 30 other companies. However, to meet Wall Street expectations and cover losses, WorldCom fraudulently reported billions in line costs as capital expenditures between 2000-2002. When the SEC investigated suspicious financial reports, WorldCom admitted to the $3.8 billion accounting fraud, causing its stock price to plummet and filing for Chapter 11 bankruptcy.
Enron collapsed due to risky energy trading, hiding losses through complex accounting, and deception. When the company's losses could no longer be concealed, Enron filed for bankruptcy in 2001. The collapse damaged investor confidence due to accounting fraud and lack of oversight, slowing the post-tech bubble stock market recovery. While the full impact was still unfolding, the market was showing signs of adjusting to restore efficiency and trust over time.
Business Ethics case study on spectacular rise and fall of Enron. Enron Corporation was an American energy, commodities, and services company based in Houston, Texas.
The Enron scandal (Accounting Fraud), publicized in October 2001, eventually led to the bankruptcy of the Enron Corporation
"Accounting Theory" is a course of MBA in Jagannath University. This course is very important understanding all the aspects of accounting in business atmosphere.
WorldCom was a global telecommunications company that grew rapidly in the 1990s through acquisitions. However, the failed acquisition of Sprint in 2000 caused financial difficulties as costs rose. The CEO and CFO then engaged in a $3.8 billion accounting fraud scheme over 5 quarters from 2001-2002 to misrepresent expenses. This involved improperly releasing expense reserves and misclassifying line costs as capital expenditures. An internal audit uncovered the fraud in 2002, plunging the company into bankruptcy and resulting in numerous prosecutions, including the 25-year imprisonment of former CEO Bernie Ebbers.
Enron was an energy company that collapsed in 2001 due to widespread corporate fraud. It had engaged in dubious accounting practices to hide losses and inflate profits. When these were revealed by a whistleblower, Enron's stock price plummeted and it declared bankruptcy. The scandal highlighted the need for reforms in accounting oversight and transparency to protect investors.
Group members were assigned topics to research about Enron. Yan Chen covered the introduction, providing background on Enron's achievements and rapid growth into a global energy giant. Yao Chen discussed Enron's business model and trading operations. Yipeng Chen analyzed Enron's accounting fraud and deception. Li Ye concluded by discussing the impact of the scandal, including Arthur Andersen's involvement and the subsequent Sarbanes-Oxley financial reforms. The document provided an overview of Enron's history from its rise to prominence to its collapse in an accounting scandal due to unethical business practices and misleading financial reporting.
This document provides an overview of the accounting fraud scandal at WorldCom that led to its bankruptcy filing in 2002. It describes how WorldCom improperly recorded $3.8 billion in capital expenditures as expenses over five quarters between 2001-2002 in order to artificially inflate profits. This was uncovered in June 2002 and had severe consequences, as WorldCom filed for Chapter 11 bankruptcy protection shortly after, listing over $100 billion in assets but $41 billion in debt. The document examines who was responsible and the impact on the telecommunications industry.
WorldCom filed for bankruptcy in 2002 despite appearing to have growth potential. The telecom boom of the 1990s led to overexpansion as companies built extensive networks. By 2000, there was too much capacity and fierce price competition emerged. WorldCom grew rapidly through 65 acquisitions from 1991-1997, taking on substantial debt. However, integration of acquired companies was poor. Additionally, WorldCom engaged in fraudulent accounting practices like capitalizing normal operating expenses to inflate profits. When the telecom market declined, WorldCom could not sustain its business model and massive debt, leading to its collapse.
Enron was once the 20th largest company in the world but collapsed in 2001 due to poor accounting practices and failing to disclose debts. Top executives at Enron did not notify the public about these accounting issues in order to keep the company operating. This led to an ethical dilemma between protecting stockholders' investments versus keeping the company afloat. In the end, Enron should have been transparent with financial information and the scandal serves as a lesson for businesses to avoid similar ethical failures.
A presentation about frauds those took place in financial giants and top most companies of the world during decades. This presentation will be helpful for students information.
MAJOR CORPORATE SCAMS eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeePRESENTATION.pptxGanesh Panda
Major corporate scandals in India and abroad are discussed. Enron manipulated earnings through fraudulent accounting techniques like improperly reporting revenues and expenses to consistently report earnings growth of 15-20% annually. Worldcom improperly accounted for $3.8 billion in expenses to hide losses. Xerox improperly recognized revenue from copy machine leases. Tyco's CEO and CFO were indicted for fraud after paying themselves unauthorized bonuses of hundreds of millions. In India, Satyam's CEO admitted to manipulating accounting for years by overstating assets and understating liabilities by $1 billion each.
Enron was originally a pipeline company that diversified into energy trading. It employed skilled mathematicians and economists but also used complex partnerships and accounting practices to hide debts and inflate profits. When these were uncovered, Enron stock plummeted from $86 to $0.26, costing employees their pensions and investors billions. The scandal highlighted the need for reforms to increase transparency and prevent conflicts of interest between companies and their auditors.
World com || Auditing and Corporate Governance Mohit Chhabra
WorldCom began as a small telecom company in 1983 and grew rapidly through acquisitions in the 1990s, becoming the second largest long-distance carrier in the US. However, oversupply in the telecom industry and failed mergers led to declining revenues. To hide this, WorldCom fraudulently reported $11 billion in line costs as capital expenditures from 1999-2002. When auditors discovered the fraud in 2002, WorldCom filed for the largest bankruptcy in US history at the time. The CEO and CFO were later convicted of fraud and accounting violations.
The document provides an analysis of the failure of corporate governance that led to two major corporate scandals - Enron and Satyam. It discusses the major reasons for corporate governance failures like ineffective boards, poor communication, and lack of transparency. It then summarizes the key events around the collapses of Enron and Satyam. Enron was once a leading energy company that filed for bankruptcy in 2001 after a major accounting fraud was uncovered, destroying billions in shareholder wealth. Satyam was a leading Indian IT company that collapsed in 2009 after it was discovered that the founder had been inflating cash and bank balances for years. Both companies fell from grace due to failures of corporate oversight and governance.
This document summarizes financial statement fraud through examples of Enron and Worldcom. It discusses how these large companies were able to artificially inflate revenues and profits through complex accounting schemes and manipulation. These frauds ultimately led to bankruptcy after being discovered. The document also examines common motivations for fraud, such as pressure to meet expectations, perceived opportunity, and rationalization. Statistical findings show financial statement fraud often involves top executives overstating assets and understating expenses to keep stock prices high until the fraud is uncovered.
Enron Scandal " A Fundamental Case Study" Emran Hosain
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded in 1985 as a merger between Houston Natural Gas and InterNorth. Enron employed approximately 30,000 staff and was a major electricity, natural gas, communications and pulp and paper company, with claimed revenues of nearly $101 billion during 2000.
Fortune named Enron "America's Most Innovative Company" for six consecutive years.
At the end of 2001, it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal".
1.1. INTERNATIONAL FINANCIAL REPORTING STANDARD - INTRODUCTION.pptxArockia Sagayaraj
The document discusses the development of GAAP and IFRS accounting standards. It provides background on accounting scandals in the late 1990s and early 2000s that highlighted the need for universal standards. As a result, IFRS were established to facilitate comparability and transparency across international markets. Over 100 countries now require the use of IFRS for public companies. The standards continue to converge and be adopted globally.
Presentation on Enron Corporation Scandal.
The Presentation consists of Introduction, Rise, Fall, Impact, Methods of Accounting, Auditing Errors, Conviction, Changes after the Enron Scandal.
The Enron scandal involved creative accounting practices used to hide debts and inflate profits. This allowed Enron executives to profit while misleading investors and employees. When the truth was revealed, Enron collapsed into bankruptcy in 2001. Thousands lost jobs and retirement savings. The scandal exposed weaknesses in auditing practices and corporate governance. It led to stricter regulation and oversight through laws like the Sarbanes-Oxley Act.
You may have heard about the accounting scandals of the early 2000s th.docxmadalynbb3ja
You may have heard about the accounting scandals of the early 2000s that included Enron, WorldCom, and Qwest Communications. In each of these scandals, investors lost billions of dollars due to questionable accounting practices. In response to these scandals, in 2002, Congress passed the Sarbanes-Oxley Act of 2002, which required publicly traded companies to report on the effectiveness of their internal controls in their SEC filings. Internal controls are procedures and processes in place at a company that ensure reliable financial statements, efficient operations, and compliance with laws and regulations. Management is required to establish, maintain, and assess their internal controls. The following are common controls that companies use to safeguard company assets and improve the reliability of their accounting records. Elements of fraud are:
Solution
ENRON SCANDAL
Enron company has gained waives over the past few years in relation to accounting
practices. Enron stands out as one of the most remarkable failures in business history. The
company engaged in many deceptive accounting practices to hide loses and receive money from
US investors. As a result most studies have given considerable attention to its accountancy
practices. Daniel Kadlec revealed in Times Magazine the whole issue related to the scandal. He
highlighted on Enron
.
The document provides an overview of the rise and fall of Enron, beginning with its founding in 1932 and growth into one of the largest companies in the US by 2000. Key events discussed include Enron's use of mark-to-market accounting and special purpose entities to hide debts and inflate profits, the revelation of accounting irregularities in late 2001, Enron filing for bankruptcy in December 2001, and the criminal investigations and prosecutions that followed the company's collapse.
Accounting scandals involve intentional manipulation of financial statements through practices like overstating assets and hiding liabilities in order to misrepresent a company's financial health. The two largest accounting scandals were Enron and Satyam. Enron hid huge debts off its balance sheet and claimed profits before earning them through improper use of mark-to-market accounting. Satyam's CEO admitted to creating over $1 billion in fake revenues in the company's books through many years of small manipulations, deceiving auditors and investors. Both scandals ultimately collapsed when the manipulations could no longer be concealed.
Enron was an American energy company that collapsed in 2001 due to widespread corporate fraud. The company used accounting loopholes to hide billions in debt and inflate profits. When the fraud was revealed, Enron filed for bankruptcy. Thousands of employees lost their jobs and retirement savings. The scandal exposed flaws in auditing practices and led to new laws like Sarbanes-Oxley to increase corporate accountability and transparency.
Enron was an American energy company that collapsed in 2001 due to widespread corporate fraud. The company used accounting loopholes to hide billions in debt and inflate profits. When the fraud was revealed, Enron filed for bankruptcy. Thousands of employees lost their jobs and retirement savings. The scandal exposed flaws in auditing practices and led to new laws like Sarbanes-Oxley to increase corporate accountability and transparency.
The Enron scandal involved accounting fraud at the energy company Enron. Enron used mark-to-market accounting to recognize future profits from long-term energy contracts before they were realized. They also used special purpose entities to hide debts and losses. This allowed Enron to misrepresent its financial performance and hide its true financial situation. When the fraud was uncovered, Enron collapsed and filed for bankruptcy in 2001, costing investors and employees billions and changing accounting practices.
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Essay on Ethics And Enron
ENRON
Introduction
Enron was the country s largest trader and marketer for electric and natural gas energy. Its core business was buying energy at a negotiated price and later, selling the energy when prices increased. As an energy broker, Enron provided a service by allowing producers to negotiate a certain price while Enron took the risk that prices would fall below what it bought energy. Buyers of energy also benefited because Enron could ensure the supply of energy. In 2000 Enron was listed number five on the Fortune 500. What happened to the company which was among the most admired for vision and quality thinking? Enron was the company that held virtual assets and not the real assets, such as power stations, which were capital...show more content...These promises changed the position of Merrill Lynch from equity to debt. But Enron showed it as cash income and did not show that amount was really a loan to be repaid. Enron was not legally required to reflect any of its debt of the SPE (Bohlman, 2005).
World Com
Introduction
WorldCom, now named MCI, recently emerged from bankruptcy protection after reporting accounting irregularities of $11 billion. During the late 1990s there was formidable pressure on WorldCom to preserve historic levels of cash flow and EBIDTA (earnings before interest, depreciation, taxes, and amortization) while new telecommunications orders were in decline as well as continued pressure on existing price points. It was during this period that WorldCom began many of the fraudulent accounting practices. The SEC Report (2003) on WorldCom identified fraudulent behavior in three main areas: the unauthorized movement of line costs to capital
Enron used complex derivatives and accounting schemes to hide losses and inflate profits. They created special purpose entities like LJM that hid debts off the balance sheet. Enron also used derivatives to hide losses from failing technology investments. As the dot-com bubble burst, Enron could no longer conceal the losses and was forced to dilute shareholders by issuing more stock. This led to the collapse of Enron in late 2001 after several accounting scandals were revealed. The Sarbanes-Oxley Act was passed in 2002 to reform accounting practices and increase transparency following the Enron scandal.
The document discusses a project proposal for establishing an online integrated blood bank database and information system in Quetta, Pakistan. The key points are:
1. The project aims to connect multiple blood banks through an online database and website to better coordinate blood supply and demand.
2. The deliverables will be an integrated database system and website allowing customers to find blood groups and donors to schedule donations.
3. The project will be implemented over 175 days and includes establishing the database, developing the website, setting up the physical infrastructure, and conducting promotions.
Metro Cash & Carry is a multi-national company that has invested 200 million Euros to open at least 10 wholesale stores across major cities in Pakistan. The company focuses on professional customers by offering one-stop shopping, efficient stores, advanced customer service, and strengthening local suppliers. Metro aims to decrease market prices and promote local goods and personnel through its business model and sustained investment in Pakistan. It ensures quality control and supply chain management for food and non-food products.
This document summarizes a marketing plan for an event management company in Quetta, Pakistan. It includes an environmental scan, market segmentation, primary and secondary research, a SWOT analysis, and details of the marketing mix - product, price, place, promotion. Research found potential customers would prefer affordable event services with security and parking. The plan proposes targeting birthdays, weddings and anniversaries in Model Town through newspapers, TV, radio, and an official website.
This document provides an overview of corporate finance presented by students at Iqra University, Quetta Campus. It defines corporate finance as dealing with decisions taken by corporations to maximize value and minimize risks. The two basic functions are the acquisition of resources like equity and debt, and allocation of resources to investments. It also discusses long and short term decisions, functions like financing, budgeting and risk management, and techniques for investment appraisal and financial analysis.
This document outlines a marketing plan for launching a new purified water brand called Crystal Water in Balochistan, Pakistan. The plan discusses importing a water purification plant from the US to produce the water. Key segments are identified as major cities in Balochistan and people of all ages and genders. Primary research was conducted through surveys and discussions. A SWOT analysis identifies strengths like imported equipment and opportunities like potential in the market. The marketing mix discusses the product name and packaging, a price penetration strategy, distributing through own agencies, and promoting through various media. In conclusion, the document presents the final marketing plan and welcomes questions.
1. The document summarizes Mati ur Rehman's first presentation at Iqra University on topics related to self-management skills including career planning, self-esteem, positive thinking, stress management, and time management.
2. Mati ur Rehman achieved gaining different perspectives on each topic presented and learning how to apply the lessons to achieving goals and handling limitations.
3. Future topics that would be covered include team building & management, conflict management, and negotiation. Maintaining a positive mindset and taking action are emphasized as keys to achieving goals.
The document discusses learning styles theory and its application in classrooms. It provides background on how learning styles theory developed based on brain imaging research. It then gives examples of how one school implemented learning styles approaches to improve student motivation, behavior, and learning by catering lessons to visual, auditory and kinesthetic learners. Resources on learning styles and brain breaks for focus are also listed.
1. UNDER THE SUPERVISION OF
HONORABLE SIR ARIF
PRESENTERS
MUTI UR REHMAN KHAN LODHI – 4463
ARSHAD HUSSAIN – 4467
JAVED GULAB – 4453
S T U D E N T S O F M A S T E R S I N B U S I N E S S A D M I N I S T R A T I O N
I Q R A U N I V E R S I T Y , Q U E T T A C A M P U S
D A T E D D E C E M B E R , 2 0 1 0
SECURITY ANALYSIS
Corporate Frauds
2. Corporate Frauds???
which arise with the disclosure of misdeeds by
trusted executives of large public corporations.
Such misdeeds typically involve complex methods
for misusing or misdirecting funds, overstating
revenues, understating expenses, overstating the
value of corporate assets or underreporting the
existence of liabilities.
Sometimes with the cooperation of officials in other
corporations or affiliates.
3. Top Ten Corporate Frauds!
1. Enron (USA) – 2001 – Lose of more than $11 billion to shareholders
2. Worldcom (USA) – Profits inflated by $3.8 Billions
3. Bank of Credit and Commerce International (UK) - £5.6bn deficit (at closure)
4. Subprime Mortgage (USA) – 2008 – Merged with JP Bank with $3 Billions
5. Bernard L. Madoff Investment Securities (USA) - $50 billion
6. American International Group (AIG) (USA) - Inflated its net worth by up to $1.7 billion
7. Barlow Clowes (United Kingdom) – 1990s - £150m to compensate
8. Fannie Mae and Freddie Mac (USA) – 2006 - fined $400 million
9. Daewoo Group (South Korea) – 2005- $54.20 Billions
10. Satyam Computers (India) – 2009 - Rs. 7,100 crores
4. Just Ten… No!
Company Year Company Year Company Year Company Year
Nugan Hand Bank 1980 MicroStrategy 2000 El Paso Corporation 2002 Reliant Energy 2002
ZZZZ Best 1986 Unify Corporation 2000 Freddie Mac 2002 Sunbeam 2002
Barlow Clowes 1988 Computer Associates 2000 Global Crossing 2002 Tyco International 2002
MiniScribe 1989 Xerox 2000 Halliburton 2002 WorldCom 2002
Polly Peck 1990 One.Tel 2001 Homestore.com 2002 Royal Ahold 2003
Bank of Credit and Commerce International 1991 Enron 2001 ImClone Systems 2002 Parmalat 2003
Northern Rock Adelphia 2002 Kmart 2002 HealthSouth Corporation 2003
Clearstream AOL 2002 Merck & Co. 2002 Chiquita Brands International 2004
Phar-Mor 1992 Bristol-Myers Squibb 2002 Merrill Lynch 2002 AIG 2004
Informix 1996 CMS Energy 2002 Mirant 2002 Bernard L. Madoff Investment Securities LLC 2008
Cendant 1998 Duke Energy 2002 Nicor 2002 Anglo Irish Bank 2008
Waste Management, Inc. 1999 Dynegy 2002 Peregrine Systems 2002
6. ENRON
Overview (1985 – 2000s)
Enron Corporation is an energy trading, natural
gas, and electric utilities company based in
Houston, Texas.
Employed around 21,000 people more than 40
Countries by mid-2001, before it went bankrupt.
Fraudulent accounting techniques allowed it to be
listed as the seventh largest company in the US.
7. ENRON (Contd)
Tactics used by Enron…
EARNINGS/(EPS) MANIPULATION
From at least 1998 through late 2001, Enron's
executives and senior managers engaged in
wide-ranging (Diversification) schemes to
deceive the investing public about the true
nature and profitability.
By manipulating Enron's publicly reported
financial results (FS) and making false and
misleading public representations.
8. ENRON (Contd)
Tactics used by Enron…
The scheme's objectives were: -
To produce that reported earnings steadily grew by
approximately 15-20% Per Annum.
To meet or exceed, without fail, the expectations of
investment analysts about Enron's EPS.
To persuade the investing public that Enron's
future profitability would continue to grow.
9. ENRON (Contd)
EARNING MANIPULATION
How?
Quarterly earnings targets were imposed on each
of the company's business units based on EPS
goals and not on true forecasts.
When the budget targets could not be met,
through results from business operations, they
were achieved through the use of fraudulent
devices.
The primary purpose was to increase the share
price which increased from $30 per share in 1998
to $80 in 2001 even after a stock split.
10. ENRON (Contd)
EARNING MANIPULATION
How?
The rising stock prices enriched Enron's
senior managers in the form of: -
Salary, Bonuses, Grants of Artificially
Appreciating Stock Options, Restricted
Stock, and Phantom stock, and Prestige
within their professions and communities.
11. ENRON (Contd)
EARNING MANIPULATION
Other Methods…
Manipulating reserve accounts to maintain the appearance of
continual earnings, growth and to mask volatility in earnings by
concealing earnings during highly profitable periods and releasing
them for use during less profitable periods.
Concealing losses in individual "business segments" through
fraudulent manipulation of "segment reporting," and deceptive use of
reserved earnings to cover losses in one segment with earnings in
another.
Manufacturing earnings through fraudulent inflation of asset values
and avoiding losses through the use of fraudulent devices designed to
"hedge," or lock-in, inflated asset values.
Structuring of financial transactions using improper accounting
techniques in order to achieve earnings objectives.
12. ENRON (Contd)
CONCEALMENT OF UNCOLLECTIBLE RECEIVABLES
How?
Conceal huge receivables (valued in the hundreds
of millions of dollars), accumulated during the
California energy crisis.
That California public utilities owed to Enron and
believed it would not be collected.
The California utilities were refusing to pay these
amount, and they likely were headed for
bankruptcy.
Enron concluded that it should book a large
reserve for these unrecoverable receivables.
13. ENRON (Contd)
CONCEALMENT OF EES FAILURES BY
MANIPULATING REPORTING
How?
In the first quarter of 2001, new EES managers
discovered and quantified hundreds of
millions of dollars in inflated valuations of EES
contracts that would have to be recorded as
losses. This would wipe out EES's modest
reported profits and reveal it was a badly
mismanaged business that was losing large
amounts of money.
EES “Enron Energy Services”
14. ENRON (Contd)
CONCEALMENT OF EES FAILURES BY
MANIPULATING REPORTING
Senior management decided to conceal these EES
losses from investors by offsetting them with
Enron Wholesale trading profits earned in that
quarter.
As well as Profits improperly reserved in prior
periods.
This was accomplished through a "reorganization"
of Enron's business segments that was made
effective for the first quarter of 2001, enabling
Enron to avoid reporting the losses in the EES
segment.
15. ENRON (Contd)
Other Tactics used by Enron…
FRAUDULENT VALUATION OF "MERCHANT"
ASSETS.
MANIPULATIVE DEVICES USED IN ENRON
WHOLESALE.
and so on…
16. ENRON (Contd)
At the end!
Enron filed for Chapter 11 bankruptcy, allowing it to reorganise while
protected from creditors.
Enron has sought to salvage its business by spinning off various assets.
Enron's core business, the energy trading arm, has been tied up in a
complex deal with UBS Warburg. The bank has not paid for the trading
unit, but will share some of the profits with Enron.
Centrica, part of the former British Gas, has bought Enron's European
retail arm for £96.4m.
Dynegy, a smaller rival, has won a key pipeline in the US after merger
talks fell through. The pipeline was then resold to Warren Buffet.
17. WorldCom
Overview (1983 – 2000s)
WorldCom was one of the big success stories of the 1990s. It
was a symbol of aggressive capitalism.
Founded by Bernie Ebbers, one of the most aggressive acquirer
during the US mergers and acquisitions boom of the 1990s.
WorldCom's asset value had soared to $180bn before the US
capital market started witnessing a downtrend.
18. WorldCom
Admitted in March 2002 that it will have to restate its financial
results to account for: -
Billions of dollars in improper bookkeeping after an internal audit.
Showed transfers of about $3.06 billion for 2001 and $797 million
for the first quarter of 2002.
There transactions were not made in accordance with generally
accepted accounting principles.
19. WorldCom
In August 2002, An internal audit has revealed an additional $3.3bn
of improperly reported earnings.
Taking the total to more than $7bn, double the level previously
reported.
$3.3bn was money from the company's reserves, which was
misrepresented as operating income.
As a result of the discovery, WorldCom said that its financial
statements for the year 2000 will have to be reissued.
Also said it may now write off $50.6bn in intangible assets.
20. WorldCom
The company filed for Chapter 11 bankruptcy protection on 22 July.
Chapter 11 is a process that protects it from its creditors while it tries
to restructure.
It became the largest bankruptcy in US history, listing $107bn in
total assets and $41bn in debts.
In May 2003, WorldCom agreed to pay a record amount to the US
financial watchdog.
21. WorldCom
MCI (formerly WorldCom), while neither admitting nor denying any
wrongdoing, came to a settlement over its massive accountancy
scandal.
It will pay $500m to the Securities and Exchange Commission, the
highest fine ever imposed by the regulator.
The original figure of $1.5bn was scaled down as MCI declared itself
bankrupt and so received favorable treatment.
The settlement sorts out the civil lawsuits that have been filed.
But the criminal cases relating primarily to the actions of former
employees at the company are still pending.
22. WorldCom
Summary…
Scandal Discovered in March 2002.
Changes
Overstated cash flow by booking $3.8 billion in operating
expenses as capital expenses.
Gave founder Bernard Ebbers $400 million in off-the-books
loans.
The company found another $3.3 billion in improperly booked
funds, taking the total misstatement to $7.2 billion, and it may
have to take a goodwill charge of $50 billion.
23. WorldCom
Finally…
Former CFO Scott Sullivan and ex-controller David Myers
have been arrested and criminally charged.
On 9th March 2005, four foreign banks agreed to pay $428.4
millions for settling the class action law suit by investors
accusing them of hiding risks at WorldCom before its collapse.
24. Parmalat
Overview (1961 – 2000s)
An Italian dairy and food company and Europe's biggest
dairy company.
Declared bankrupt in late 2003.
36,000 workers around the world and 5,000 Italian dairy
farms dependent on the company.
At the end of 2003, one of the biggest corporate accounting
scandals in history came to light as a 8 billion euro.
25. Parmalat
In 1999, Parmalat set up a subsidiary in the Cayman Islands
called “Bonlat”.
The first indication of financial problems came in early 2003.
As the company tried to sell 500 million euro in bonds.
After this CFO Fausto Tonna resigned in March replaced by
Alberto Ferraris.
26. Parmalat
The crisis became public in November as the Parmalat
Scandal.
Questions were raised about transactions with mutual fund
Epicurum, (Another company linked to Parmalat)
Ferraris resigned less than a week later replaced by Luciano
Del Soldato.
In December, Del Soldato resigned, unable to get cash from
Epicurum fund, needed to pay debts and make bond
payments.
27. Parmalat
Tanzi himself resigned as chairman and CEO.
Parmalat's bank, Bank of America, then released a document
showing 3.95 billion Euros in Bonlat's bank account as a
forgery.
Prime Minister Silvio Berlusconi initiated a Fraud
investigation and appointed Bondi to administer the
company's rescue.
28. Parmalat
Calisto Tanzi, once a symbol of unlimited success, was
detained hours after the firm was declared officially insolvent
and eventually charged with financial fraud and money
laundering.
Italians were shocked that such a vast and established empire
could crumble so quickly.
Tanzi reportedly admitted during questioning in prison, that
he diverted funds from Parmalat into Parmatour and
elsewhere.
29. Thanking You For Patience!
REGARDS
Mati ur Rehman
Arshad Hussain
Javed Gulab
Security Analysis (Specialization-IV)
Masters in Business Administation,
Iqra University,
Quetta Campus