short answer set / worldcom scam preventable? (2 assignments)

First assignment

Provide a unique and
supported response to each of the questions below. You are encouraged to
utilize other sources besides the textbook. In your submission, please write
out the question and provide the response directly afterwards.

  1. Explain why the overstatement
    of a reserve for accumulated depreciation of an acquired company at the
    time of acquisition would cause an overstatement of goodwill.
  2. Discuss what types of
    fraudulent activities could create increases in gross margin as a
    percentage of sales.
  3. How can lifestyle changes
    help in detecting fraud?
  4. Briefly describe how the use
    of databases could help in detecting kickback fraud schemes.
  5. After reading lecture two,
    choose one of the three employee schemes discussed and suggest three ways
    it may be mitigated or prevented.
  6. Describe the type of person
    that is most likely to commit a large fraud.

Second assignment :could worldcom scam been avoided

Under the direction
of CEO and co-founder Bernie Ebbers, WorldCom grew to become one of the largest
telecom companies in the world. Ebbers was a growth advocate, acquiring more
than 50 different firms. One of its biggest acquisitions was in 1997, when MCI
was acquired for roughly $37 billion. In less than two decades, WorldCom had
grown from a small telephone company to a corporate giant, controlling about
half of the U.S. Internet traffic and handling at least half of the e-mail
traffic throughout the world. Having once been a highest-performing stock
company, a plunge in 2002 forced the company into bankruptcy. During its
success, WorldCom had established a large reserve account, from which monies
were pulled to cover decreasing revenues, without auditor or investor
knowledge. As these reserves dwindled, the company CFO, Scott Sullivan, ordered
accountants to reclassify many of the company’s OPERATING expenses as CAPITAL
expenses. The result was an increase in operating income and a corresponding strengthening
of the balance sheet to the tune of almost $4 billion. Eventually detected by
auditors, the company was forced to file the largest Chapter 11 bankruptcy ever
recorded. Thousands of employees lost not only their jobs, but also their
entire retirement savings. The fraud cost investors billions of dollars as the
company quickly went from a multibillion-dollar franchise to bankruptcy.
Several company executives were indicted on counts of conspiracy and security
fraud. The main perpetrator, Scott Sullivan (CFO), received a sentence
requiring him to pay as much as $25 million in fines and serve up to 65 years
in prison.

The Sarbanes-Oxley
Act of 2002 has, in many ways, changed the role of financial statement
auditors. In addition to ensuring financial statement accuracy, independent
auditors are now required to review a company’s internal controls and report
their assessments in the company’s annual report. How might these new policies
help prevent financial statement fraud from occurring?

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