Here is the synopsis of our sample research paper on The Manipulation of Financial Statements to Inflate Profits and Investment: The Examples of WorldCom and Enron
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Essay / Research Paper Abstract
This is a 3 page paper discussing the methods of manipulation of financial statements companies have used to inflate profits. Within the last several years, large multi-billion corporations such as WorldCom and Enron have collapsed due to the misrepresentation of their profits. While misstating profits and earnings, the companies encouraged further investments but in fact were defrauding their investors because investments were made in the companies based on their manipulated financial reports. Manipulation of financial statements came through a variety of accounting methods which relied upon the complex “in process” stages of the multi-mergers and acquisitions of the companies. Overall, methods used for the manipulation of profit reports included “in process” R&D charges, pooling, restructuring reserve, revenue recognition, the use of stock from dummy or affiliated corporations as collateral to secure more loans or investments, and the reporting of future earnings of acquired companies as profits. Because of the misstatement of revenues by both companies however, they are left in financial ruin along with the ruin of their investors, employees, and affiliated businesses.
Bibliography lists 6 sources.
Page Count:
3 pages (~225 words per page)
File: D0_TJinflt1.rtf
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Unformatted sample text from the term paper:
misstating profits and earnings, the companies encouraged further investments but in fact were defrauding their investors because investments were made in the companies based on their manipulated financial reports. Manipulation
of financial statements came through a variety of accounting methods which relied upon the complex "in process" stages of the multi-mergers and acquisitions of the companies. Overall, methods used for
the manipulation of profit reports included "in process" R&D charges, pooling, restructuring reserve, revenue recognition, the use of stock from dummy or affiliated corporations as collateral to secure more loans
or investments, and the reporting of future earnings of acquired companies as profits. Because of the misstatement of revenues by both companies however, they are left in financial ruin along
with the ruin of their investors, employees, and affiliated businesses. In 2001, one of the world leaders in the telecommunications industry was WorldCom
which was located in over 65 countries and had total revenues reported at $22.8 billion. Within the last several years however WorldCom and several other "serial acquirer" companies have come
under the investigation of the U.S. Securities and Exchange Commission (SEC) for their "imaginative accounting techniques" which have led to inflated profits based on several accounting R&D "write-offs" among other
processes (Chidi, 2002). Some of the accounting techniques used at WorldCom in order to supplement R&D write-offs included the use of "in process" R&D charges, pooling, restructuring reserve and revenue
recognition. "In process" R&D charges involve charges which are taken by the buyer at the time of an acquisition of a company and represent the value of the R&D portion
of the newly acquired company. When a transaction is still considered "in process", the research within the company is not considered commercially viable as it may prove to be worthless
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