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. Government
Reforms After Financial Scandals
ACC 230 WEEK 7 DQ 2
Discussion 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. government done to improve
the 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 a
21.8% increase in sales and a 25.1% decrease in receivable. The textbook
tells us that, "if receivables decline, the allowance for doubtful accounts
would decline as well." Doubtful accounts here means those accounts whose
customers were in default and unlikely to pay their bills. Just as Cisco did
not decrease (and in fact increased) its allowance for doubtful accounts, so
WorldCom initially refused to decrease its allowance for doubtful accounts.
By suddenly turning around in the third quarter of 2000 and telling
accounting to write off $405 million in accounts receivable, WorldCom
significantly increased the company's earnings report at the end of 2000.
While Wall Street analyst viewed WorldCom's behavior as a one-time
nonrecurring event, Cisco's prior behavior raises suspicions that WorldCom
may be trying to intentionally manipulate earnings numbers. At best, XXXXX
XXXXXquestion the credit policy strategies of the firm, as this sort of
reporting artificially raises the value of the company.
As Cisco and Enron demonstrate, poor quality reporting can lead to
manipulation of the market, profiting insiders while defrauding investors.
The U.S. government has made an effort to improve the quality of reporting
after recent financial scandals by passing the federal Sarbanes-Oxley Act of
2002. This Act created the "Public Company Accounting Oversight Board,"
Reforms After Financial Scandals
ACC 230 WEEK 7 DQ 2
Discussion 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. government done to improve
the 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 a
21.8% increase in sales and a 25.1% decrease in receivable. The textbook
tells us that, "if receivables decline, the allowance for doubtful accounts
would decline as well." Doubtful accounts here means those accounts whose
customers were in default and unlikely to pay their bills. Just as Cisco did
not decrease (and in fact increased) its allowance for doubtful accounts, so
WorldCom initially refused to decrease its allowance for doubtful accounts.
By suddenly turning around in the third quarter of 2000 and telling
accounting to write off $405 million in accounts receivable, WorldCom
significantly increased the company's earnings report at the end of 2000.
While Wall Street analyst viewed WorldCom's behavior as a one-time
nonrecurring event, Cisco's prior behavior raises suspicions that WorldCom
may be trying to intentionally manipulate earnings numbers. At best, XXXXX
XXXXXquestion the credit policy strategies of the firm, as this sort of
reporting artificially raises the value of the company.
As Cisco and Enron demonstrate, poor quality reporting can lead to
manipulation of the market, profiting insiders while defrauding investors.
The U.S. government has made an effort to improve the quality of reporting
after recent financial scandals by passing the federal Sarbanes-Oxley Act of
2002. This Act created the "Public Company Accounting Oversight Board,"
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Document Details
University
Hult International Business School
Subject
Accounting