Biggest Accounting Scandals Every Entrepreneur Should Know About
The
old Italian adage that “Big mouthfuls often choke” holds true in many
scenarios.
One
particular case where the sentiment is particularly true is when it comes to
temptations for those in charge of large sums of money in the financial
accounting of large corporations, as the greed for money often leads to
accounting scandals.
That
being said, the last three decades have witnessed some of the biggest accounting
scandals in history. Billions of dollars were lost, companies ended up
bankrupt, and peoples’ lives were ruined, with some sentenced to life
imprisonment.
Enron,
WorldCom, and Olympus are examples of large companies torn apart by accounting
fraud and scandals. While most of these scandals involve multi-billion-dollar
companies, small and medium-sized companies can also be victims of accounting
scandals.
Accountants, despite their attractive pay, if controlled by greed can collaborate with their bosses to cook the books in a bid to pocket more, or paint a “more profitable” image of the company to the public. Here are 3 of the biggest accounting scandals in history.
1. The Enron Scandal (2001)
Enron
was a US energy company based out of Houston, Texas.
In 2001, it was discovered that the company has been using accounting loopholes to keep huge debts off-balance sheet and simultaneously inflate earnings. As a result, the shareholders of Enron lost $74 billion, thousands of investors lost their retirement savings, and many employees lost their jobs.
The
masterminds were the company’s CEO Jeff Skilling and former CEO Ken Lay. Both
were convicted but Lay died before serving time in prison. Skilling was
imprisoned for 24 years and the auditing firm Arthur Anderson was also found
guilty of falsifying Enron’s accounts. Later, Enron filed for bankruptcy.
2. WorldCom Scandal (2002)
WorldCom
was a telecommunications company based in Virginia, US.
In 2002, it was discovered that the company had overstated its assets by almost $11 billion, making it one of the largest accounting scandals in history. Arthur Anderson was again involved with a huge fraud case, and they uncovered irregularities in the accounting practices.
Arthur
Anderson also reported that WorldCom had been using internal transfers and
false operating expenses to conceal decreasing earnings. This fraud resulted in
$180 billion loses to investors and over 30,000 job cuts.
The
key mastermind was the company’s CEO Bernie Ebbers although the CFO was also
involved. The CFO was fired and the company filed for bankruptcy. However,
Ebbers was found guilty of fraud and sentenced for 25 years.
3. The Olympus Scandal (2008)
The
Olympus scandal is one of the largest scandals known in history. It’s not the
amount defrauded that makes it popular, but rather the length of the fraud.
Olympus
is a renowned international camera corporation. In 2011, it was discovered that
the previous management had buried losses since the 1990s. The fraud in
question amounted to 1.7 billion. The company leveraged acquisitions to cover
up losses on poor investments, and the corporation had deferred losses for over
20 years.
When
everything came to light, the former chairman Tsuyoshi Kikukawa alongside three
other executives received a suspended sentence.
To Sum Up
Accounting
scandals are real, and have ruined the reputation of many businesses and led to
the closure of others.
While no business is immune to accounting fraud, having an intelligent accounting system such as ZipBooks that gives you smart insights and detailed company reports can help to mitigate the incidences of accounting fraud.
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