Detecting Accounting Fraud: Analysis and Ethics - Global Ed

Cover
Title
Copyright
Contents
Preface
Instructor Supplements
Acknowledgments
Chapter 1 Introduction to the Problem of Accounting Fraud
What Is Accounting Fraud?
Civil Accounting Fraud
Criminal Accounting Fraud
The Extent of Accounting Fraud
Accounting Fraud at the Turn of the Millennium
Enron and WorldCom
Stock Options
External Auditors
Boards of Directors
Investment Bankers
Internal Controls
The Sarbanes-Oxley Act of 2002
Internal Control Requirements (Section 404 of SOX)
Responsibilities of Corporate Management (Section 302 of SOX)
Other SOX Regulations
Accounting Fraud and the Financial Crisis of 2008
The Dodd-Frank Act of 2010
The Top-Twenty Methods of Fictitious Financial Reporting
Assignments
Chapter 2 Ethics at Work
Theories of Ethics
The Three Major Normative Ethical Theories
Applied Ethics: Ethical Decision-Making Models in the Business World
The Consequentialist/Utilitarian Approach to the Decision-Making Model
The Rights-and-Duties Approach to the Decision-Making Model
The Justice Approach to the Decision-Making Model
An Ethical Decision-Making Model for Accountants
The American Accounting Association Ethical Decision-Making Model
Key Terms
Assignments
Case Study: Peter Madoff, Former Chief Compliance Officer and Senior Managing Director of Bernard L. Madoff Investment Securities, LLC
Chapter 3 The Sizzling Saga of Sunbeam
The History of Sunbeam
The History of Al Dunlap
How Wall Street Embraced Sunbeam’s Downsizing Plans
“Downsizing or Dumbsizing?”
Dunlap’s Carrot-and-Stick Approach
An Overview of Sunbeam’s Fictitious Financial Reporting Schemes
Scheme #1: Improper Timing of Revenue Recognition via Bill and Hold Sales, Consignment Sales, and other Contingent Sales
Scheme #2: Improper Use of Restructuring Reserves
The Sunbeam Inferno
Signals of Sunbeam’s Schemes
Signals of Sunbeam’s Fictitious Reporting Scheme #1—Improper Timing of Revenue Recognition via Bill and Hold Sales, Consignment Sales, and Other Contingency Sales
Signals of Sunbeam’s Fictitious Reporting Scheme #2—Overstating Earnings via Improper Use of Restructuring Reserves
Are They Living Happily Ever After?
Key Terms
Ethics at Work
Assignments
Case Study: Beazer Homes USA, Inc.
Chapter 4 Hocus Pocus
Sensormatic: Madness at Midnight
An Overview of Sensormatic’s Fictitious Financial Reporting Schemes
Scheme #1: Holding Books Open after the Close of a Reporting Period
Scheme #2: False Recognition of Early Shipments
Scheme #3: Slow Shipping Requests
Scheme #4: Recognizing “FOB Destination” Sales at the Time of Shipment
Scheme #5: Misleading the Auditors
Signals of Sensormatic’s Fictitious Reporting Schemes #1–#4
Are They Living Happily Ever After?
Xerox: Do Not Duplicate
An Overview of Xerox’s Fictitious Financial Reporting Schemes
Scheme #1: Improper Use of Multiple-Element Contracts or Bundled Contracts
Scheme #2: Estimates of Discount Rates and Residual Values
Scheme #3: Improper Disclosure of Sales of Leases
Signals of Xerox’s Fictitious Reporting Schemes
Are They Living Happily Ever After?
CUC: Phony Funds
An Overview of CUC’s Fictitious Financial Reporting Schemes
The CUC Scheme of Reporting Fictitious Revenue via Top-Side Adjustments
Signals of CUC’s Scheme of Reporting Fictitious Revenue
Are They Living Happily Ever After?
Insignia: Return to Sender
The Insignia Scheme of Failing to Value Revenue Correctly
Signals of Insignia’s Fictitious Reporting Scheme of Failing to Value Revenue Properly
Are They Living Happily Ever After?
Key Terms
Ethics at Work
Assignments
Case Study: Peregrine Systems, Inc.
Chapter 5 WorldCom Wizardry: From WorldCom to WorldCon
The Wizards of WorldCom
The Chief Wizard: Bernard Ebbers
The Assistant Wizard: Jack Grubman
The Accounting Wizard: Scott Sullivan
The Acquisitions Spree
The Myth of Internet Growth
Making Accounting Magic with Acquisitions
MCI Falls under the WorldCom Spell
Problems at WorldCom
An Overview of WorldCom’s Fictitious Financial Reporting Schemes
Scheme #1: Improper Use of Merger Reserves
Scheme #2: Improper Capitalization of Expenses
The Collapse of Wizard World
Ebbers Loses Control
The End of the Sullivan Era
The Gatekeepers Who Failed WorldCom
Signals of the WorldCom Fraud
Signals of WorldCom’s Fictitious Reporting Scheme #1—Improper Use of Acquisition or Merger Reserves
Signals of WorldCom’s Fictitious Reporting Scheme #2—Understating Expenses via Improper Capitalization of Expenses
Are They Living Happily Ever After?
Key Terms
Ethics at Work
Assignments
Case Study: Tyco International, Ltd.
Chapter 6 Abracadabra
Livent: Phantom of the Finances
An Overview of Livent’s Fictitious Financial Reporting Schemes
Scheme #1: Understatement of Expenses via Removing Invoices from the Records
Scheme #2: Improper Deferral of Expenses
Scheme #3: Improper Capitalization of Expenses
Additional Miscellaneous Schemes
Signals of Understatement of Expenses
Signals of Fictitious Reporting Scheme #1—Understating Expenses and the Corresponding Liabilities via Lack of Accrual
Signals of Fictitious Reporting Scheme #2—Understating Expenses via Deferral of the Expenses
Signals of Fictitious Reporting Scheme #3—Understating Expenses via Capitalization of the Expenses
Are They Living Happily Ever After?
Rite Aid: “The Keys to the Kingdom”
Rite Aid’s Fictitious Financial Reporting Schemes
Scheme #1: Overstating Ending Inventory Values to Reduce Cost of Goods Sold
Scheme #2: Adjusting Gross Profit Entries to Reduce Cost of Goods Sold
Scheme #3: Improper Recognition of Vendor Rebates to Reduce Cost of Goods Sold
Other Rite Aid Manipulations
Signals of the Fictitious Reporting Schemes of Reducing Cost of Goods Sold
Are They Living Happily Ever After?
Allegheny (AHERF): Trick or Treatment?
AHERF’s Fictitious Financial Reporting Schemes
AHERF’s Fictitious Financial Reporting Scheme of Understating Bad Debts
AHERF’S Other Fabrications
Signals of the Fictitious Reporting Scheme of Understating Bad Debts
Are They Living Happily Ever After?
Lockheed: Sky High
Lockheed’s Fictitious Financial Reporting Scheme of Failing to Account for Asset Impairments
Signals of the Failure to Record Asset Impairments
Are They Living Happily Ever After?
Key Terms
Ethics at Work
Assignments
Case Study: Navistar International Corporation
Chapter 7 Enron and the Tale of the Golden Goose
The Start of Enron
Kenneth Lay
Jeffrey Skilling
Andrew Fastow
Lay, Skilling, and Fastow
Enron Capital and Trade (ECT)
How Enron Lost a Fortune
The Projects of Rebecca Mark
Enron Energy Services
Enron Online
Enron Broadband Services
The Electricity Fiasco in California
Enron’s Fictitious Financial Reporting Schemes
Scheme #1: The Abuse of Mark-to-Market Accounting via Mariner Energy
Scheme #2: The Abuse of SPEs
Scheme #3: The Prepay Transactions
Signals of the Enron Frauds
Signals of Enron’s Fictitious Reporting Schemes of Using SPEs (or Unconsolidated Affiliates) to Understate Debt and Overstate Earnings
General Signals of Enron’s Assorted Financial Problems
Are They Living Happily Ever After?
Key Terms
Ethics at Work
Assignments
Case Study: Basin Water, Inc.
Chapter 8 Tall Tales
The Edison Lesson
Edison’s Fictitious Financial Reporting Scheme via Inadequate Disclosure
Edison’s Choice of Accounting Treatment
Are They Living Happily Ever After?
The Adelphia Account
Adelphia’s Fictitious Financial Reporting Schemes
Scheme #1: Improper Use and Misleading Disclosure of Related-Party Transactions
Scheme #2: Improper Use of Non-GAAP Financial Measures
Signals of Adelphia’s Fictitious Reporting Schemes
Signals of Adelphia’s Fictitious Reporting Scheme #1—Improper Use and Misleading Disclosure of Related-Party Transactions
Are They Living Happily Ever After?
The BellSouth Warning
BellSouth’s Fictitious Financial Reporting Schemes
Scheme #1: The Use of Fabricated Invoices at Telcel
Scheme #2: The Use of Inappropriate Payments and the Failure to Keep Accurate Records at Telefonia
Improper Acounting in Violation of the FCPA
Are They Living Happily Ever After?
Krispy Kreme and the Missing Dough
An Overview of Krispy Kreme’s Operational Problems
Signals of Krispy Kreme’s Operational Problem of Opening Too Many Franchises
An Overview of Krispy Kreme’s Fictitious Financial Reporting Schemes
The Krispy Kreme Scheme of Using Inappropriate Accounting for Round-Trip Transactions
Signals of Krispy Kreme’s Fictitious Reporting Scheme of Misusing Round-Trip Transactions
Are They Living Happily Ever After?
Key Terms
Ethics at Work
Assignments
Case Study: BUCA, Inc.
Chapter 9 Mortgage Mayhem
The Housing Bubble
Easy Credit: Securitization
Easy Profit: Tranching
Easy Banking: Regulations Repealed
Easy Investing: Credit Default Swaps
Hard Times
The Countrywide Story
Increased Credit Risk
Pay-Option ARM Loans
Countrywide’s Misleading Description of Loans in SEC Filings
Countrywide’s Underestimation of Allowance for Loan Losses
Signals of Countrywide’s Underestimation of Allowance for Loan Losses
An Overview of Countrywide’s Notes to Its Financial Statements
Accounting Lessons from the Mortgage Crisis
Are They Living Happily Ever After?
Key Terms
Ethics at Work
Assignments
Case Study: TierOne Bank
Appendix
References
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