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ACC 230 Week 7: The Consequences of Poor Quality Reporting and U.S. Government Reforms After Financial Scandals

An exploration of financial scandals and resulting reforms.

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    ACC 230 Week 7: The Consequences of Poor Quality Reporting and U.S. Government Reforms After Financial Scandals ACC 230 WEEK 7 DQ 2 Discussion Question 2 · Due Date: Day 4 [Main forum] · Post your answer to Study Question 5.6 on p. 180 in Ch. 5. · Discuss the consequences of poor quality reporting. What has the U.S. government done to improve the quality of reporting after recent financial scandals, such as Enron? WorldCom, Inc.'s behavior is comparable to Cisco's behavior from 2000 - 2004. In that instance, Cisco reported on its 2001 Form 10 - K that it had a 21.8% increase in sales and a 25.1% decrease in receivable. The textbook tells us that, "if receivables decline, the allowance for doubtful accounts would decline as well." Doubtful accounts here means those accounts whose customers were in default and unlikely to pay their bills. Just as Cisco did not decrease (and in fact increased) its allowance for doubtful accounts, so WorldCom initially refused to decrease its allowance for doubtful accounts. By suddenly turning around in the third quarter of 2000 and telling accounting to write off $405 million in accounts receivable, WorldCom significantly increased the company's earnings report at the end of 2000. While Wall Street analyst viewed WorldCom's behavior as a one - time nonrecurring event, Cisco's prior behavior raises suspicions that WorldCom may be trying to intentionally manipulate earnings numbers. At best, XXXXX XXXXXquestion the credit policy strategies of the firm, as this sort of reporting artificially raises the value of the company. As Cisco and Enron demonstrate, poor quality reporting can lead to manipulation of the market, profiting insiders while defrauding investors. The U.S. government has made an effort to improve the quality of reporting after recent financial scandals by passing the federal Sarbanes - Oxley Act of 2002. This Act created the "Public Company Accounting Oversight Board,"

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