In the past few years, corporate America has seen a deluge of accounting frauds leading to introduction of reforms aimed at improving corporate governance. The authors examine frauds at WorldCom, HealthSouth, Xerox, and Enron.Somebody has aptly said that God is in the details. In the case of corporate scams, probably the devil is. Most students of accounting or finance have a very limited understanding of the details of frauds that shook corporate America which finally culminated in the enactment of the Sarbanes-Oxley Act 2002. Even after the enactment, various other corporate scams have been uncovered. We would like to examine some of the frauds with a view to understand the accounting principles which were violated or the loopholes which were exploited by these companies.
On June 26, 2002, US regulators charged WorldCom Inc., with fraud after it admitted to the SEC that it had hidden almost $4 bn of costs, bringing the company to the brink of bankruptcy. What happened at WorldCom and how did it manage to hide these costs? After all wishing away expenses of $4 bn is not something that even the best magician can get away with. Accountants all over the world, however, are cleverer than Houdini and reading between the lines becomes difficult when the lines themselves are blurred and twisted to suit the needs of the corporate conjurors.
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