Who’s been Cooking the Books?
Search the Securities and Exchange Commission’s (SEC) website under the Accounting and Auditing Enforcement Releases section (http://www.sec.gov/divisions/enforce/friactions.shtml)
2) Identify 1 company that has been investigated by the SEC for improper or fraudulent accounting. For example, suppose you are interested in companies that have manipulated income tax expense in order to increase net income. If you type “tax expense”, you will see that ConAgra Foods, Inc. had an SEC investigation related to this issue in 2007.
3) Read the Accounting and Auditing Enforcement Release to find the main points of what happened at the company and of what they were accused.
4) If your company is accused of multiple different frauds, you can pick the one fraud that interests you and ignore the other frauds.
5) Find the company’s financial statements for the last year when the company committed the fraud. For example, if your company was charged with the fraud over the years 1999-2001, you can use only the 2001 financial statements from the 10-K. Also, examine the NOTES to the financial statements that give details about your specific fraud and line item.
6) You can find the annual financial statements (10-K) at the SEC website (http://www.sec.gov/edgar/searchedgar/companysearch.html).
7) Below would be a listing of ConAgra’s financial statements. You can search for the 10-K for your company the same way.
8) Circle the line items on the financial statements that were manipulated and highlight important sections of the notes to the financial statements. Copy and paste the financial statements and relevant footnotes to the Appendix of your project file.
9) Write a 1-page description, using your own words, of how the company actually committed the fraud (DO NOT include background or history of the company).
10) Write a 1-page description of the types of journal entries that the company might have used for the fraud. Also, provide examples of the correct journal entries that should have been used. Be creative! Think about the different real-world cases that we discuss in class (e.g. Sunbeam, Enron, Waste Management, Worldcom, Tyco, Adelphia, etc.). You can
research some of these cases to find examples of how companies can manipulate journal entries.
11) Write a 1-page description of whether this type of fraud would be easier or more difficult to commit under International Financial Reporting Standards (IFRS). Include reasoning for why you believe this is the case.
12) The final write-up should be about 3 pages long and must be double-spaced, 1” margins, Times New Roman, 12-point font. (include financial statements and relevant footnotes as Appendix). Include list of References.
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