Miniscribe Essay

Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay

What are the pressures that lead executives and managers to “cook the books?” There are several factors that can come into play. For WorldCom, it started with the deterioration of the industry in 2000. This was due to overcapacity, heightened competition, the economic recession, the dot-com bubble collapse, and a reduced demand for telecommunications services. All of these factors put extra pressure on WorldCom’s most important performance indicator, the expense-to-revenue ratio. The company was so concerned about keeping it above 42% that they were willing to do anything, even commit fraud. Bernie Ebbers told the senior staff that they would lose everything if the company did not improve its performance.

2. Identify specific audit procedures that might have led to the detection of the following accounting irregularities perpetrated by Crazy Eddie personnel: (a) the falsification of inventory count sheets,

The section 302 in Title III - “Corporate Responsibility for Financial Reports”, would have made the CEO and CFO, which are Monus and Finn, respectively, state their understanding on how fair the financial statements presents the condition and result of operations in all material aspects. In part 5, this section also requires disclosure of significant deficiencies identified in internal control to the auditors and audit committee, among other disclosures related to fraud.

The auditing firm has been in engagement with the company throughout the period when the fraud was being committed. One of the common and clear indicators of possible fraud was the company’s cash flow statement. The company experienced positive growth in its profits from the year 1996 through to the year 1998. However, a close analysis of the cash flow statement shows that the company had experienced negative figures of cash flow from both operating and investing activities and positive cash flow from financing activities which would not sufficiently offset the negative cash flows from operating and investing. It is therefore evident

The audit board is in charge of administering the corporation's internal control structure, its budgetary detailing procedure, and its consistence with related laws, directions, and principles. The advisory group works intimately with the corporation's outside and internal auditors. SOX requires audit boards of trustees to be in charge of procuring, adjusting, and managing the auditors and for auditors to report

There were several situations that lead the executives and managers of WorldCom to "cook the books." Acquisition of other companies drove WorldCom to spend beyond their means; managers were told to spend whatever was necessary to increase revenue, even if it meant that long-term costs would outweigh the short-term gains. This fiscally unhealthy mentality led to a very bad decision to enter into long-term fixed rate leases for network capacity with extensive punitive termination provisions. Once the market for WorldCom 's services started to cool down, the expense to revenue ratio started to increase – as expenditures increased and revenue decreased, the percentage value would rise above the targeted 42% to a larger, more unfavorable

The Molex Corporation is an electronic connector manufacturing firm, which is based in Illinois. This company is facing a financial reporting problem in which the financial statements were overstated. Joe King ,the CEO of the company, was appointed in July of 2001, and was responsible for managing and inventory control, among other very important duties. Diane Bullock was hired in 2003, to replace the previous CFO. Both Bullock and King were being accused of what? by the external auditors, Deloitte & Touche, for not disclosing an 8 million pre-tax inventory valuation error.

Inflated sales, profit margins, and account receivables, while failed to disclose direct competition from entities related to its chairman.

Some of the provisions related to this scandal are the certification of accuracy of the company’s financials, auditing firms are not allowed to offer non-auditing services and preclude financial expert to make profit or take advantage of the company’s financials for their own interest.

1. Compute key ratios and other financial measures for Crazy Eddie during the period 1984-1987. Identify and briefly explain the red flags in the Crazy Eddie’s financial statements that suggested the firm posed a higher than normal level of audit risk. 2. Identify specific audit procedures that might have led to the detection of the following accounting irregularities perpetrated by the Crazy Eddie personnel? a) The falsification of inventory count

First and foremost, the accounting system used should be updated. The case stated that the system was 30 years old and that prior accounting period transactions could not be locked down, which enabled internal control processes to be bypassed. Enhancing internal

telecommunications company, was a victim of these expectations that led to the evolution of a

143). Nearly all individuals and organizations are subject to pressure and rationalization of actions, the risk of fraud is great if internal controls are non-existent or can be overridden. It is vital to look-out for indicators that signal weakness in internal control environment. Opportunities exist for fraud due to role of process owners in the structure of internal control and the ability to avoid or override the existing controls (Golden, Skalak & Clayton, 2006 p. 134). Lack of sound corporate governance functions such as inadequacy in the extent and effectiveness of supervision by independent functions are al signals of fraud as it’s a demonstration of weak control environment. The control environment includes the continuity and effectiveness of internal audit, information technology, and accounting personnel as well as the effectiveness of accounting and reporting systems (Golden, Skalak & Clayton, 2006 p. 134). When such deficiencies are not managed or disciplinary actions put in place to check such weaknesses or override of controls, it may signal potential red

Joshua Kennon (2007), stated that “The board of directors is the highest governing authority within the management structure at any publicly traded company and is usually made up of the directors who are elected for a specific number of years by the shareholders”. According to Wikipedia,” A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization”.