The companies listed in Exhibit 9 were caught in the midst of ethical lapses that
lead to fines, firings, and criminal or civil prosecution. The second column of Exhibit 9
identifies the accounting concept that was violated in committing these unethical busi-
ness practices. For example, the WorldComfraud involved reporting various expense
items as though they were assets. This is a violation of the matching concept and
resulted in overstating income and assets. The third column of the table identifies some
of the results of these events. In most cases, senior and mid-level executives lost their
jobs and were sued by upset investors. In some cases, the executives also were crimi-
nally prosecuted and are serving prison terms.24 Chapter 1 The Role of Accounting in Business
Exhibit 9
Accounting Fraud in the 2000sCompany Concept Violated Result
Adelphia Business Entity Concept:Rigas family Bankruptcy, Rigas family members
treated the company assets as their own. convicted of fraud and lost their
investment in the company.AIG Business Entity Concept:Compensation CEO (Chief Executive Officer) resigned.
transactions with an off-shore company that AIG paid $126 million in fines.
should have been disclosed on AIG’s books.AOLandPurchasePro Matching Concept:Back-dated Civil charges filed against senior
contracts to inflate revenues. executives of both companies.
$500 million fine.Computer Associates Matching Concept:Fraudulently CEO and senior executives indicted.
inflating revenues. Five executives pled guilty. $225
million fine.Enron Business Entity Concept:Treated transactions Bankruptcy. Criminal charges against
as revenue, when they should have senior executives, over $60 billion in
been treated as debt. stock market losses.Fannie Mae Accounting Period Concept:Managing CEO and CFO fired. $9 billion in restated
earnings by shifting expenses between earnings.
periods.HealthSouth Matching Concept:$4 billion in false Senior executives face regulatory and
entries to overstate revenues. civil charges.Qwest Matching Concept:Improper CEO and six other executives charged
recognition of $3 billion in revenue. with “massive financial fraud.” $250
million SEC fine.Tyco Adequate Disclosure Concept:Failure to CEO forced to resign and was convicted
disclose secret loans to executives that were in criminal proceedings.
subsequently forgiven.WorldCom Matching Concept:Improperly treated Bankruptcy. Criminal conviction of CEO
expenses as assets. and CFO. Over $100 billion in stock
market losses. Directors fined $18 million.Xerox Matching Concept:Recognized $3 $10 million fine to SEC. Six executives
billion in revenue in periods earlier fined $22 million.
than should have been recognized.