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ACC 230 Week 7: The Consequences of Poor Quality Reporting and U.S. Government Reforms After Financial Scandals

An exploration of financial scandals and resulting reforms.

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ACC 230 Week 7: The Consequences of Poor Quality Reporting and U.S. GovernmentReforms After Financial ScandalsACC 230 WEEK 7 DQ 2Discussion Question 2· Due Date: Day 4 [Main forum]· Post your answer to Study Question 5.6 on p. 180 in Ch. 5.·Discuss the consequences of poor quality reporting. What has the U.S. governmentdone to improvethe quality of reporting after recent financial scandals, such as Enron?WorldCom, Inc.'s behavior is comparable to Cisco's behavior from 2000-2004. In that instance, Cisco reported on its 2001 Form 10-K that it had a21.8% increase in sales and a 25.1% decrease in receivable. The textbooktells us that, "if receivables decline, the allowance for doubtful accountswould decline as well." Doubtful accounts here means those accounts whosecustomers were in default and unlikely to pay their bills. Just as Cisco didnot decrease (and in fact increased) its allowance for doubtful accounts, soWorldCom initially refused to decrease its allowance for doubtful accounts.By suddenly turning around in the third quarter of 2000 and tellingaccounting to write off $405 million in accounts receivable, WorldComsignificantly increased the company's earnings report at the end of 2000.While Wall Street analyst viewed WorldCom's behavior as a one-timenonrecurring event, Cisco's prior behavior raises suspicions that WorldCommay be trying to intentionally manipulate earnings numbers. At best, XXXXXXXXXXquestion the credit policy strategies of the firm, as this sort ofreporting artificially raises the value of the company.As Cisco and Enron demonstrate, poor quality reporting can lead tomanipulation of the market, profiting insiders while defrauding investors.The U.S. government has made an effort to improve the quality of reportingafter recent financial scandals by passing the federal Sarbanes-Oxley Act of2002. This Act created the "Public Company Accounting Oversight Board,"

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Document Details

University
Hult International Business School
Course
ACC 230
Subject
Accounting

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