University Finance: Advanced Financial Accounting Fraud Analysis

This assignment delves into the realm of advanced financial accounting, specifically focusing on the analysis of corporate fraud cases. The student's work examines three prominent examples: Enron, WorldCom, and TYCO, dissecting the methods employed to manipulate financial statements and engage in fraudulent activities. The assignment begins by defining accounting as the language of business, highlighting its reliance on mathematical principles, and then proceeds to analyze the specific techniques used in each case, such as 'mark to market' accounting and the creation of 'off-balance sheet entities.' The student also explores the role of internal managers in fraud detection, emphasizing the importance of fostering a culture of ethics and integrity within organizations to prevent financial malfeasance and its adverse long-term effects, including loss of reputation and potential bankruptcy. The assignment concludes by referencing relevant academic sources to support the analysis.

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

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

2ADVANCED FINANCIAL ACCOUNTING
Answer 1
Accounting is defined as measurement, processing and communication of financial
information regarding entities of economics such as corporation and business. It is the
language of business. Accounting is applications of the elementary arithmetic that is the part
of mathematics. Some of the calculations of accounting such as depreciation computation,
loan instalment determination and others requires techniques of mathematics. Mathematics
plays vital role in accounting such as recording and managing transactions of business (Huber
& DiGabriele, 2014).
It can be said, after going through three articles that the accounting is mathematics.
This is due to the fact that concepts of accounting is adopted by those involved in corporate
accounting scandals. It means mathematical concepts of imaginary numbers are used. All
those involved in corporate fraud, manipulates the accounting data with the help of using
mathematical approaches. In order to play with numbers, they applies formula and models of
mathematics. Therefore, in all stated three cases of Enron, World Com and TYCO,
manipulations in accounting has been done by applying mathematical approaches for
maintaining higher profit and coming fraudulent activities (Sălceanu, 2014).
Answer 2
In case of Enron, there was different methods or technique used for committing
fraudulent activities. The first method used was “mark to market”. It was done for
accounting the projected income from long-term contracts of the energy as current earnings.
The reason for this was to inflate revenue with the help of manipulating future revenue
projections. The second method adopted by Enron was forming “off balance sheet entities” to
move the debt off of balance-sheet and then transferring risk to another venture of business
(Comer, 2017).

3ADVANCED FINANCIAL ACCOUNTING
In case of World Com, the effort was made by company to increase the total revenue.
Hence, for reducing the money amount held in reserves of company, they made an effort for
moving this reserves money to revenue line of the financial statement. In addition to this,
WorldCom in 2000 has started to classify operating expenses as the capital’s long-term
investments. Further, journal entry of $500m in expenses of the computer has been added.
However, for supportive this, they have no shown any documents (Wells, 2017).
Lastly, in TYCO case, the commitment of corporate fraud was due to errors in
accounting. The accusations was on company’s former CFO, former General Council and
CEO for providing themselves with lower interest loans or interest-free loans that was never
and neither approved by company’s board nor it was repaid. It has also been accused that
Tyco’s stock was sold but investors was not notified regarding the same. Under SEC rules, it
is mandatory to notify investors regarding selling of stock. Hence, these all illegal activities
was committed to keep it out from accounting books and away from eyes of shareholders as
well as members of board (Comer, 2017).
I, therefore, feel as a manager that the internal manager of company should play major
role in detecting fraud activities. They needs to support management efforts to establish the
culture that can embrace ethics, integrity as well as honesty. It is due to the fact that in any
way corporate fraud is not beneficial for company, as it may attract the management for
earning short-term gain but in long-term, it will be having adverse and serious effects. This
can result in losing reputation, market share and lead the company towards bankruptcy.

4ADVANCED FINANCIAL ACCOUNTING
Reference
Comer, M. J. (2017). Corporate fraud. Routledge.
Huber, W., & DiGabriele, J. A. (2014). Research in forensic accounting-what
matters?. Journal of Theoretical Accounting Research, 10(1), 40-70.
Sălceanu, A. (2014). Creative accounting-between the true picture and the accounting
fraud. Anale. Seria Ştiinţe Economice. Timişoara, 20(20), 290-296.
Wells, J. T. (2017). Corporate fraud handbook: Prevention and detection. John Wiley &
Sons.