Questions and Answers of Auditing And Accounting Cases

A former BFA director incorporated both ALO and New Church Ventures. The entities had no employees of their own, and both organizations paid BFA substantial management fees to provide accounting,
WorldCom generally maintained its own lines for local service in heavily populated urban areas. However, it relied on non-WorldCom networks to complete most residential and commercial calls outside
Enron paid Arthur Andersen $$46.8$ million in fees for auditing, business consulting, and tax work for the fiscal year ended August 31, 1999; $$58$ million in 2000; and more than $$50$ million
Because the financial statements for the years 1993 through 1996 were not presented in conformity with Generally Accepted Accounting Principles (GAAP), Waste Management’s independent auditor,
The special investigative committee of the board of directors (the special committee) found no evidence that WorldCom’s independent auditor, Arthur Andersen, in fact determined that WorldCom’s
Sunbeam’s auditor, Arthur Andersen, came under fire for having issued an unqualified opinion on the company’s financial statements for both 1996 and 1997. In January 1999 a class action lawsuit
On October 12, 2001, after reading through some of Andersen’s internal memos related to the Enron audits, one of Andersen’s lawyers, Nancy Temple, advised Andersen’s practice director in
Shortly after the announcement that Waste Management had overstated reported pretax earnings by $$1.43$ billion for the years 1993 through 1996, the company entered into a merger agreement with USA
The major fixed assets of Waste Management’s North American business consisted of garbage trucks, containers, and equipment, which amounted to approximately $6 billion in assets. The second largest
Even as conditions in the telecommunications industry deteriorated in 2000 and 2001, WorldCom continued to post impressive revenue numbers. In April 2000 CEO Ebbers told analysts that he
To facilitate its growth in communications services revenue, Qwest unveiled an aggressive acquisition strategy in the late 1990s. Indeed, after a slew of other acquisitions, Qwest entered into a
Under GAAP, sales revenue can be recognized only if the buyer assumes the risks and rewards of ownership of merchandise—for example, the risk of damage or physical loss. A sale with a right of
Under Generally Accepted Accounting Principles (GAAP), a cost can be capitalized if it provides economic benefits to be used or consumed in future operations.A company is required to write off, as a
Enron was created in 1985 by the merger of two gas pipeline companies: Houston Natural Gas and InterNorth. Enron’s mission was to become the leading natural gas pipeline company in North America.
WorldCom generally maintained its own lines for local service in heavily populated urban areas. However, it relied on non-WorldCom networks to complete most residential and commercial calls outside
FOF incorporated FOF Proprietary Funds, Ltd. (FOF Prop) as an umbrella for specialized investment accounts that were managed by its investment advisers.One of these accounts was the National
Qwest executives allegedly made false and misleading disclosures concerning revenues from its directory services unit, Qwest Dex Inc. (Dex). In addition, executives were charged with having
Within Andersen there was a group of expert accountants tasked with reviewing and passing judgment on difficult accounting, auditing, and tax issues; this group was called the professional standards
FOF incorporated FOF Proprietary Funds, Ltd. (FOF Prop) as an umbrella for specialized investment accounts that were managed by its investment advisers.Each of FOF Prop’s investment advisers had a
A Ponzi scheme is any fraudulent investment plan that pays its returns to an investor from either that investor’s own principal or principal paid by future investors, not from legitimate investment
Enron was created in 1985 by the merger of two gas pipeline companies: Houston Natural Gas and InterNorth. Enron’s mission was to become the leading natural gas pipeline company in North America.
The Baptist Foundation of Arizona (BFA) was an Arizona religious nonprofit 501(c)(3) organization that was incorporated in 1948 to provide financial support for Southern Baptist causes. It was formed
WorldCom evolved from a long distance telephone provider named Long Distance Discount Services (LDDS), which had annual revenues of approximately $$1.5$ billion by the end of 1993. LDDS connected
The early beginnings of Sunbeam Corporation can be traced back to the Chicago Flexible Shaft Company, founded by John Stewart and Thomas Clark in 1897.Although the company did not change its name to
In the mid-1990s Qwest Communications International embarked on building a fiber-optic network across major cities within the United States. The network would consist of a series of cables that
The Investors Overseas Services, Limited (IOS) was a Canadian company headquartered in Switzerland that offered diversified financial services, which included the management of mutual funds. IOS was
In 1956 Dean Buntrock took control of Ace Scavenger, a garbage collector that was owned by his then father-in-law who had recently died. After merging Ace with several waste companies, Buntrock
At Enron executives had incentives to achieve high-revenue growth because their salary increases and cash bonus amounts were linked to reported revenues.In the proxy statement filed in 1997, Enron
Soon after the precipitous decline of Arizona’s real estate market in 1989, BFA management decided to establish a number of related affiliates. These affiliates were controlled by individuals with
The audit committee of the board of directors at WorldCom had ultimate responsibility for ensuring that the company’s systems of internal controls were effective. The internal audit department
Top-side adjusting journal entries are typically made by upper managers at the very end of the reporting process, usually at corporate headquarters. Because these journal entries are typically not
FOF incorporated FOF Proprietary Funds, Ltd. (FOF Prop) as an umbrella for its specialized investment accounts that were managed by outside investment advisers. Each investment adviser had a duty to
Enron was created in 1985 by the merger of two gas pipeline companies: Houston Natural Gas and InterNorth. Enron’s mission was to become the leading natural gas pipeline company in North America.
In its 1996 financial results, Sunbeam reported restructuring costs that did not comply with GAAP because they included amounts for items that benefited future activities.3 These costs lowered
An IRU is an irrevocable right to use specific fiber-optic cable or fiber capacity for a specified period. Qwest treated IRU sales as sales-type leases, which allow a seller to treat a lease
ALO and New Church Ventures had no employees of their own, and both organizations paid BFA substantial management fees to provide accounting, marketing, and administrative services. As a result, both