Lesson: 75-78

Topic: Accounting-Related Scandals

Overview:

In groups of two to three, students will prepare an investigative report on a recent corporate scandal that involved improper accounting practices. The scandals to be investigated are outlined below:

GroupScandal
1.Parmalat
2.Tyco
3.Livent
4.Adelphia Communications
5.WorldCom
6.Enron
7.Xerox
8.Nortel

 

Resources:

Resources for the various scandals to be investigated are outlined below:


Requirements: Each PowerPoint presentation must include the following:

Note: Each group should expect to present for between 15 and 20 minutes.

For more details of the expectations for this report, download the Accounting Scandals Rubric.

Resources:

General Accounting Fraud Resources:


Parmalat: In December 2003, Italian prosecutors launched an investigation into suspected fraud at global food group Parmalat <PRFI.MI> after it revealed a gaping hole in its accounts. The company, known around the world for its long-life milk, stunned financial markets on Dec. 19 when it said a document showing 3.95 billion euros ($5.07 billion) held by a Cayman Islands subsidiary was declared false by Bank of America. Company founder Calisto Tanzi subsequently said when questioned that the accounting hole was about 8 billion euros. He is among nine arrested so far in what U.S. regulators have called one of the world's biggest corporate fraud scandals.

Resources:


Tyco: Tyco International Ltd. - Also in June 2002, U.S.-based conglomerate Tyco International (nyse: TYC - news - people) came under investigation into whether executives used corporate cash to buy art and a home. Tyco's former chairman, Dennis Kozlowski, is currently on trial accused along with former chief financial officer Mark Swartz of looting the company of more than $600 million through unauthorized pay and illicit stock sales. The two men have denied any wrongdoing.

Resources:


Livent: The Toronto entertainment company collapsed in 1998 amid allegations of financial impropriety that led to its financial results being restated. Soon after the collapse, the new management of Livent filed a $225-million lawsuit against Garth Drabinsky and Myron Gottlieb, the two Canadians who founded the theatre company. Livent then fired Drabinsky and Gottlieb, saying they "fraudulently manipulated" financial records to hide losses of $100 million. They have counter-sued for $210 million. Livent also filed for bankruptcy protection, citing debts of $334 million. Drabinsky and Gottlieb are facing hearings before the Ontario Securities Commission. Drabinsky is facing charges in New York. Livent shares are now worthless. Resources:


Adelphia Communications: In March, the Pennsylvania-based cable company said it had loaned billions of dollars to the founding Riga family. The family relinquished control of Adelphia, which defaulted on $7 billion US in debt and filed for Chapter 11 bankruptcy protection on June 25.

Resources:


WorldCom: WorldCom Inc. - In July 2002, WorldCom filed for bankruptcy protection in the largest insolvency in U.S. history after the long-distance telephone and data services company buckled under an accounting scandal and a mountain of junk-rated debt. U.S. regulators charged the telecommunications company with fraud after the firm admitted it improperly recorded almost $4 billion in its accounts -- a figure that was eventually revised upward to $11 billion. Ahold NV - In February 2003, Dutch retailer Ahold disclosed accounting irregularities at its U.S. food service business and profit overstatements of more than $500 million. It restated its financial statements for 2000 and 2001. Chief Executive Cees van der Hoeven and Chief Financial Officer Michiel Meurs resigned over the scandal.

Resources:


Enron: Enron Corp. - In December 2001, U.S. energy trader Enron (ENRNQ.PK) collapsed into bankruptcy, burdened with at least $16.8 billion in debt and other obligations. In January 2002, the U.S. Justice Department opened a criminal probe of Enron, focusing on off balance-sheet partnerships that were suspected of being used to hide debt and inflate profits. Andersen was indicted in the United States in 2002 for its role as Enron's auditor. The firm suffered a mass client exodus and faced billions of dollars in lawsuits. The other four major accounting firms carved up Andersen's global business.

Resources:


Xerox: In June 2002, Xerox (nyse: XRX) said it would restate five years of results to reclassify more than $6 billion in revenues. In April 2003, the company settled had charges that it used "accounting tricks" to defraud investors.

Resources:


Nortel: In late April of 2004, Nortel fired three high-level executives and put several others on paid leave after the company's internal investigations found irregularities with its accounting practices. The company has also been hit with numerous class-action lawsuits related to the accounting scandal.

Resources:

Expectations Addressed:

 

The "Ethics, Impact of Technology, and Careers" strand of the BAF3M Ministry of Education Curriculum Guidelines outlines all of the following specific expectations. The expectations addressed by this lesson have been highlighted below.

 

 


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