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Auditing Scandals

Accounting and auditing scandals in the world

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Assignment 1

Alisha Angelique potgieter



??? Scandals in the USA Page 4

1. Enron Page 4

1. Who were the auditors

2. Fines and penalties

3. What happened

2. Bristol-Meyers Squibb Page 5

1. Who were the auditors

2. Fines and penalties

3. What happened

3. Worldcom Page 6

1. Who were the auditors

2. Fines and penalties.

3. What happened

4. Xerox Page 7

1. Who were the auditors

2. Fines and penalties.

3. What happened

??? Scandals in South Africa Page 8

1. Sarah Fox Children??™s Home Page 8

1. Who were the auditors

2. Fines and penalties.

3. What happened

??? Scandals in Australia Page 9

1. HIH Insurance Page 9

1. Who were the auditors

2. Fines and penalties.

3. What happened

??? Scandals in Italy Page 10

1. Parmalat Page 10

1. Who were the auditors

2. Fines and penalties.

3. What happened


Scandals in the USA

1. Enron

1. Enron was investigated by:

??? DOJ

??? SEC

??? FERC

??? Various congressional committees

1. The company??™s auditor was Mr. Arthur Anderson and he was convicted of obstruction of justice for destroying Enron documents.

2. Michael Kopper, the ex-executive of Enron pled guilty to two felony charges. The CEO commented that the company may face $100 billion in claims and liabilities.

3. Enron boosted profits and hid debts amounting to the total of $1 billion. This is illegal in all countries, seeing as it does not comply with IFRS.

3. They did this by improperly using off-the-books partnerships.

3. They manipulated the Texas power market as well as the California energy market.

3. Furthermore they bribed foreign government in order to get contracts abroad.


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The scandal went public in October of 2001.

Source: http://whatreallyhappened.com/WRHARTICLES/enron.html

1. Bristol-Myers Squibb

1. Bristol-Myers Squibb was investigated by the SEC.

2. Former CFO Frederick S. Schiff and former executive vice president Richard J. Lane were indicted

3. In a effort to get inventory levels back to an acceptable size, there will be reduces earnings of 61 cents per share through 2003.

3. Bristol-Myers Squibb inflated its 2001 revenue by $1.5 billion. They achieved this by ???channel stuffing???. The term channel surfing means force wholesalers to accepts more inventory than they can sell.

1. They did this for one reason only. So that inventory will not show in the manufacturer??™s books. Wholesales acquired almost $2 billion in excess inventories

The Bristol-Myers Scandal went public in July of 2002.

Robert T. Zito, SVP Corporate and Business Communications Chief and CFO


Source: http://www.cfo.com/article.cfm/4096065

2. Worldcom

1. Worldcom was investigated by:

??? DOC

??? SEC

??? U.S Attorney??™s Office for the Southern District of New York

??? Various congressional committees

1. The first discovery of possible illegal activity was by WorldComs own internal audit department who uncovered approximately $3.8 billion of the fraud in June 2002

2. The former CFO, Scott Sullivan, and ex-controller, David Myers, were arrested and criminally charged.

3.2 Rumors of Bernie Ebbers??™ impending indictment persist.

3. The company overstated cash flow. This was done by booking $3.8 billion of operating expenses as capital expenses.

3. The company also made $400 million of loans to the founder, Bernard Ebbers. This was all done off-the-books.

3. Recently the company stunned the Street when another $3.3 billion in improperly booked funds was found. This will bring the total restatement up to$7.2 billion.


The Worldcom Scandal went public in March of 2002.


Source: http://www.associatedcontent.com/article/162656/worldcom_scandal_a_look_back_at_one.html

3. Xerox

1. Xerox was investigated by the SEC.

1. When Xeroxs auditors, KPMG, questioned the legitimacy of the companys accounting practices, senior management requested that a new partner be assigned to its account.

2. On June 5, 2003, six Xerox senior executives accused of securities fraud, including its former chief executive officer, Paul A. Allaire and G. Richard Thoman, and its former chief financial officer, Barry D. Romeril, agreed to pay $22 million in penalties, disgorgement, and interest

3. After the scandal went public in June of 2000, Xerox agreed to pay a $10 million fine and to restate all of its financial records dating back to 1997.

3. Xerox deceived the general public by falsely recording revenue. They did this by recognizing a sale in the period a lease contract was signed instead of recognizing revenue ratably over the entire length of the contract.

3. The U.S. GAAP prohibits companies from recognizing the entire proceeds of the sale of equipment unless certain criteria are met, such as transfer of ownership. If none of the criteria are met, the “sale” is considered a lease, and only the rental payments owed to the company in the current period can be treated as revenue in the current period.

Source: http://www.corporatenarc.com/xeroxscandal.php
Scandals in South Africa

Scandals in Australia

1. HIH Insurance

1. HIH Insurance was investigated by the Royal Commission

1. Once again the accounting firm Arthur Anderson??™s name is depicted in yet another auditing scandal. They were involved in the Enron scandal (U.S) (page 3) and now their name appears in the HIH Insurance scandal (Australia).

2. As to date no penalties or fines has been imposed on the company or the auditing firm, because they still have to appear in front of the Royal Commission.

3. In the financial year ending June 2000 the auditing firm found that the company was operating with a $ 470 million surplus. But nine months later a black hole was found in the books of HIH Insurance.

4. A legal counsel assisting the Royal Commission, Wayne Martin, alleged that the auditing firm willingly involved themselves in the scandal by verifying accounts that they knew to be false. This was later confirmed.

5. The auditing firm furthermore booked large profits from contracts that didn??™t show any profit.


Source: http://accounting.smartpros.com/x32793.xml
Scandals in Italy
1. Parmalat
1. Parmalat was investigated by:
??? The SEC
??? Italian authorities
1. The company??™s auditor was Grant Thorntons, but Italian law requires companies to change their audit firm every nine years. So it was Deloitte & Touche that first picked up on the irregularities.

2. Two of Grant Thornton??™s executives have been among the 11 people who were arrested in connection with the case.

3. $10 billion in declared assets has simply disappeared.

2. Parmalat has been using its assets to offset more than a decade??™s worth of liabilities. They did this through a network of foreign and offshore finance companies. These assets, however, did not exist. Once the investigation started the company forged a document from the bank stating that there was n accounting containing $4 billion.
The Founder of Parmalat
Source: http://www.allbusiness.com/accounting-reporting/fraud/1081567-1.html


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