University Finance: Advance Financial Accounting Assignment

This assignment delves into the realm of accounting fraud, examining real-world cases such as Enron, WorldCom, and TYCO. The analysis explores the methodologies employed in these fraudulent activities, including the use of "mark to market" accounting, off-balance-sheet companies, and manipulation of financial statements. The assignment highlights the crucial role of mathematics in accounting and how it can be exploited for fraudulent purposes. Furthermore, it emphasizes the significance of internal auditors in establishing a culture of integrity, honesty, and ethics within an organization to detect and mitigate fraud. The document concludes with a call for robust internal controls to safeguard against corporate fraud and protect the company's reputation and financial stability. The assignment provides a comprehensive understanding of the causes and consequences of accounting fraud, offering valuable insights for financial professionals and students alike.

Running Head: ADVANCE FINANCIAL ACCOUNTING
ADVANCE FINANCIAL ACCOUNTING
Name of the Student
Name of the University
Author Note

1ADVANCE FINANCIAL ACCOUNTING
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................2
Reference....................................................................................................................................4

2ADVANCE FINANCIAL ACCOUNTING
Answer 1
Accounting is language of the business. It helps in providing reports and numbers,
which can be used for justifying and guiding organizational decisions. It is the process to
collect, measure, analyze as well as communicate the information for encouraging to make
decisions within business and the other organization in wider community. Further,
mathematics plays important role in finance and accounting development for hundreds of the
years. The relationship in between mathematics and accounting is the fact that simple
mathematics and numbers are used by the accounting such as division, multiplication,
subtraction and addition (Pamungkas et al. 2018).
After reading the three articles, it can be said that accounting is mathematics. It is
because those who are involved in the scandals of corporate accounting adapts mathematical
concepts of the imaginary numbers for using in business world. The earnings can be easily
manipulated by using approach of mathematics. Those indulge in fraud, applies all the
models and formula of mathematics for playing with the numbers. Further, auditing relates to
traditional accounting branch, which involves checking of mathematical accuracy in
department of accounting. Hence, in all the three case study, it can be seen that manipulations
has been done in accounting by applying the mathematical formulas and approaches for
committing fraudulent activities and maintaining profit (Smith, 2018).
Answer 2
The main ways of fraud done in Enron was using accounting method that is known to
be “mark to market”. Enron used this particular technique for accounting projected income
from the long-term contracts of energy as the current earning. This was used for inflating the
numbers of revenue by manipulating the projections for the future revenue. Further, apart

3ADVANCE FINANCIAL ACCOUNTING
from this, Enron also formed the off balance-sheet companies for moving debt off of the
balance-sheet and transferring risk to another ventures of their business (Soltani, 2014).
The way in which WorldCom has committed fraud was for making an effort for
increasing total revenue, company reduced the amount of the money it held in their reserve
and they moved this particular money in financial statement’s revenue line. Moreover, in year
2000, this entity commenced doing classifications of operating expenses as long-term
investments of capital. Apart from this, they added journal entry in the expenses of computer
for $500 m, however, no supportive documents was found for these expenses (Chen et al.
2016).
In case of TYCO, main ways of committing fraud was because of accounting errors.
The former CEO, CFO and the former General Counsel of company were being accused for
giving themselves quite lower interest or the interest-free loans, which were never been
approved or repaid by board of Tyco. In addition, there was also accusations that stock of
company was sold without notifying investors that is required under rules of SEC. All these
illegal actions was done by keeping them out of books of accounting as well as away from
the members of board and shareholders eyes.
Therefore, as a manager, I feel that internal auditors should support the efforts of
management for establishing culture, which embraces integrity, honesty and ethics. It will
assist the management with evaluations of the internal control that are used for detecting or
mitigating fraud. It is because corporate fraud in any way not good for the organization. The
company lost its reputation and it leads towards bankruptcy. These can be good for short-
term but for long-term perspective, it will have adverse effect on company (Soltani, 2014).

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Reference
Chen, J., Cumming, D., Hou, W., & Lee, E. (2016). Does the external monitoring effect of
financial analysts deter corporate fraud in China?. Journal of Business Ethics, 134(4),
727-742.
Pamungkas, I. D., Ghozali, I., Achmad, T., Khaddafi, M., & Hidayah, R. (2018). Corporate
Governance Mechanisms in Preventing Accounting Fraud: A Study of Fraud
Pentagon Model. Journal of Applied Economic Sciences Quarterly, 8(2), 549-560.
Smith, M. (2018). Luca Pacioli: The father of accounting. Available at SSRN 2320658.
Soltani, B. (2014). The anatomy of corporate fraud: A comparative analysis of high profile
American and European corporate scandals. Journal of business ethics, 120(2), 251-
274.