Detecting Accounting Fraud: Analysis and Ethics - Global Ed.

Description

For courses in Accounting Fraud, Forensic Accounting, Financial Statement Fraud, Financial Statement Analysis, Ethics for Accountants, and Auditing. A case-study approach that enables students to identify key signs of fraud in financial statements. Over the last two decades, financial statement fraud has become an increasingly serious issue, resulting in the collapse of ostensibly solid companies and a subsequent lack of confidence in financial markets. Detecting Accounting Fraud: Analysis and Ethics was created in response to the challenges facing accountants in this era. The text provides students a thorough overview of the most frequently used methods of overstating earnings and assets or understating debt in financial statements. It also provides detailed coverage of the main signals indicating possible fictitious reporting in financial statements to help students learn what to look for. And because breakdowns in ethics underlie accounting fraud, the text presents three major theories of ethics, plus applicable ethical decision-making models as well as opportunities for students to apply ethical models to real-world situations. This text provides a better teaching and learning experience—for you and your students. It will help you to: • Explain accounting fraud through detailed case studies: The text’s real-world case study approach helps students understand the methods used to perpetrate financial statement fraud today. • Focus student attention on ethics: Ethics coverage integrated throughout the text helps students understand this topic’s importance vis-à-vis accounting fraud. • Foster thorough understanding via student-focused features: An engaging, captivating writing style and diverse end-of-chapter materials motivate and assist students. Cover......Page 1 Title......Page 4 Copyright......Page 5 Contents......Page 10 Preface......Page 18 Instructor Supplements......Page 20 Acknowledgments......Page 21 Chapter 1 Introduction to the Problem of Accounting Fraud......Page 26 What Is Accounting Fraud?......Page 27 Civil Accounting Fraud......Page 28 Criminal Accounting Fraud......Page 29 The Extent of Accounting Fraud......Page 30 Enron and WorldCom......Page 31 External Auditors......Page 32 Boards of Directors......Page 33 Investment Bankers......Page 34 The Sarbanes-Oxley Act of 2002......Page 35 Other SOX Regulations......Page 37 Accounting Fraud and the Financial Crisis of 2008......Page 39 The Dodd-Frank Act of 2010......Page 41 The Top-Twenty Methods of Fictitious Financial Reporting......Page 43 Assignments......Page 45 Chapter 2 Ethics at Work......Page 48 Theories of Ethics......Page 49 The Three Major Normative Ethical Theories......Page 50 Applied Ethics: Ethical Decision-Making Models in the Business World......Page 54 The Consequentialist/Utilitarian Approach to the Decision-Making Model......Page 55 The Rights-and-Duties Approach to the Decision-Making Model......Page 56 The Justice Approach to the Decision-Making Model......Page 58 An Ethical Decision-Making Model for Accountants......Page 59 The American Accounting Association Ethical Decision-Making Model......Page 60 Assignments......Page 62 Case Study: Peter Madoff, Former Chief Compliance Officer and Senior Managing Director of Bernard L. Madoff Investment Securities, LLC......Page 65 Chapter 3 The Sizzling Saga of Sunbeam......Page 70 The History of Sunbeam......Page 71 The History of Al Dunlap......Page 73 How Wall Street Embraced Sunbeam’s Downsizing Plans......Page 75 “Downsizing or Dumbsizing?”......Page 76 Dunlap’s Carrot-and-Stick Approach......Page 77 Scheme #1: Improper Timing of Revenue Recognition via Bill and Hold Sales, Consignment Sales, and other Contingent Sales......Page 81 Scheme #2: Improper Use of Restructuring Reserves......Page 85 The Sunbeam Inferno......Page 86 Signals of Sunbeam’s Fictitious Reporting Scheme #1—Improper Timing of Revenue Recognition via Bill and Hold Sales, Consignment Sales, and Other Contingency Sales......Page 91 Signals of Sunbeam’s Fictitious Reporting Scheme #2—Overstating Earnings via Improper Use of Restructuring Reserves......Page 95 Are They Living Happily Ever After?......Page 96 Ethics at Work......Page 97 Assignments......Page 98 Case Study: Beazer Homes USA, Inc.......Page 102 Chapter 4 Hocus Pocus......Page 118 Sensormatic: Madness at Midnight......Page 119 Scheme #1: Holding Books Open after the Close of a Reporting Period......Page 120 Scheme #5: Misleading the Auditors......Page 121 Signals of Sensormatic’s Fictitious Reporting Schemes #1–#4......Page 122 An Overview of Xerox’s Fictitious Financial Reporting Schemes......Page 123 Scheme #2: Estimates of Discount Rates and Residual Values......Page 124 Signals of Xerox’s Fictitious Reporting Schemes......Page 125 Are They Living Happily Ever After?......Page 126 An Overview of CUC’s Fictitious Financial Reporting Schemes......Page 127 The CUC Scheme of Reporting Fictitious Revenue via Top-Side Adjustments......Page 128 Signals of CUC’s Scheme of Reporting Fictitious Revenue......Page 129 Insignia: Return to Sender......Page 130 Signals of Insignia’s Fictitious Reporting Scheme of Failing to Value Revenue Properly......Page 131 Key Terms......Page 132 Assignments......Page 133 Case Study: Peregrine Systems, Inc.......Page 136 Chapter 5 WorldCom Wizardry: From WorldCom to WorldCon......Page 145 The Chief Wizard: Bernard Ebbers......Page 146 The Assistant Wizard: Jack Grubman......Page 149 The Acquisitions Spree......Page 150 The Myth of Internet Growth......Page 152 Making Accounting Magic with Acquisitions......Page 153 MCI Falls under the WorldCom Spell......Page 156 Problems at WorldCom......Page 157 An Overview of WorldCom’s Fictitious Financial Reporting Schemes......Page 159 Scheme #1: Improper Use of Merger Reserves......Page 160 Scheme #2: Improper Capitalization of Expenses......Page 162 Ebbers Loses Control......Page 163 The End of the Sullivan Era......Page 165 The Gatekeepers Who Failed WorldCom......Page 167 Signals of WorldCom’s Fictitious Reporting Scheme #1—Improper Use of Acquisition or Merger Reserves......Page 170 Signals of WorldCom’s Fictitious Reporting Scheme #2—Understating Expenses via Improper Capitalization of Expenses......Page 171 Are They Living Happily Ever After?......Page 175 Assignments......Page 176 Case Study: Tyco International, Ltd.......Page 180 Chapter 6 Abracadabra......Page 192 Livent: Phantom of the Finances......Page 193 An Overview of Livent’s Fictitious Financial Reporting Schemes......Page 194 Scheme #2: Improper Deferral of Expenses......Page 195 Additional Miscellaneous Schemes......Page 196 Signals of Fictitious Reporting Scheme #1—Understating Expenses and the Corresponding Liabilities via Lack of Accrual......Page 197 Signals of Fictitious Reporting Scheme #2—Understating Expenses via Deferral of the Expenses......Page 198 Are They Living Happily Ever After?......Page 199 Scheme #1: Overstating Ending Inventory Values to Reduce Cost of Goods Sold......Page 200 Scheme #3: Improper Recognition of Vendor Rebates to Reduce Cost of Goods Sold......Page 201 Signals of the Fictitious Reporting Schemes of Reducing Cost of Goods Sold......Page 202 Are They Living Happily Ever After?......Page 204 Allegheny (AHERF): Trick or Treatment?......Page 205 Signals of the Fictitious Reporting Scheme of Understating Bad Debts......Page 206 Lockheed: Sky High......Page 207 Lockheed’s Fictitious Financial Reporting Scheme of Failing to Account for Asset Impairments......Page 208 Signals of the Failure to Record Asset Impairments......Page 209 Ethics at Work......Page 210 Assignments......Page 213 Case Study: Navistar International Corporation......Page 216 Chapter 7 Enron and the Tale of the Golden Goose......Page 227 Kenneth Lay......Page 228 Jeffrey Skilling......Page 232 Lay, Skilling, and Fastow......Page 235 Enron Capital and Trade (ECT)......Page 236 The Projects of Rebecca Mark......Page 237 Enron Energy Services......Page 240 Enron Online......Page 241 Enron Broadband Services......Page 242 The Electricity Fiasco in California......Page 245 Scheme #1: The Abuse of Mark-to-Market Accounting via Mariner Energy......Page 248 Scheme #2: The Abuse of SPEs......Page 249 Scheme #3: The Prepay Transactions......Page 264 Signals of Enron’s Fictitious Reporting Schemes of Using SPEs (or Unconsolidated Affiliates) to Understate Debt and Overstate Earnings......Page 266 General Signals of Enron’s Assorted Financial Problems......Page 273 Are They Living Happily Ever After?......Page 278 Key Terms......Page 279 Ethics at Work......Page 280 Assignments......Page 281 Case Study: Basin Water, Inc.......Page 285 Chapter 8 Tall Tales......Page 293 Edison’s Fictitious Financial Reporting Scheme via Inadequate Disclosure......Page 294 The Adelphia Account......Page 296 Scheme #1: Improper Use and Misleading Disclosure of Related-Party Transactions......Page 297 Signals of Adelphia’s Fictitious Reporting Schemes......Page 299 Are They Living Happily Ever After?......Page 300 The BellSouth Warning......Page 301 Scheme #2: The Use of Inappropriate Payments and the Failure to Keep Accurate Records at Telefonia......Page 302 Krispy Kreme and the Missing Dough......Page 303 Signals of Krispy Kreme’s Operational Problem of Opening Too Many Franchises......Page 305 The Krispy Kreme Scheme of Using Inappropriate Accounting for Round-Trip Transactions......Page 306 Key Terms......Page 307 Ethics at Work......Page 308 Assignments......Page 312 Case Study: BUCA, Inc.......Page 315 Chapter 9 Mortgage Mayhem......Page 326 The Housing Bubble......Page 327 Easy Credit: Securitization......Page 328 Easy Profit: Tranching......Page 329 Easy Banking: Regulations Repealed......Page 330 Easy Investing: Credit Default Swaps......Page 331 Hard Times......Page 333 The Countrywide Story......Page 335 Increased Credit Risk......Page 337 Pay-Option ARM Loans......Page 338 Countrywide’s Underestimation of Allowance for Loan Losses......Page 339 Signals of Countrywide’s Underestimation of Allowance for Loan Losses......Page 340 Are They Living Happily Ever After?......Page 349 Ethics at Work......Page 350 Assignments......Page 351 Case Study: TierOne Bank......Page 355 Appendix......Page 362 References......Page 366 A......Page 384 B......Page 385 C......Page 386 D......Page 388 E......Page 389 F......Page 390 H......Page 392 I......Page 393 L......Page 394 M......Page 395 O......Page 396 R......Page 397 S......Page 399 U......Page 401 Z......Page 402