American Accounting Scandals

o Fact: Adlephia Communications caused losses of over 60 Billion to investors

 A company books its everyday, ordinary, operating expenses under capital expenses

 Problem is according to GAAP capital assets expenses can be spread out for the duration of use

 Example: WorldCom transferred over $3.83 billion in operating expenses to property plant and equipment accounts in their ledger.

 This it inflates income because expenses that are supposed to be recognized in a certain time period are now spread out.

 Causes an inaccurate EBITDA (Earnings before interest, taxes, depreciation, and amortization) Analysis which is widely used by stakeholders to measure a company’s health

o Companies Under Investigation: Adelphia Communications, Enron, WorldCom, Xerox

o Fact: Enron hide over $1 Billion Dollars in Debt

 “Companies will move liabilities and debt off the books by moving them into different entities.”

 A loophole in GAAP allows companies to create legal structures called special purpose entities (S

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Approximate Word count = 2261
Approximate Pages = 9 (250 words per page double spaced)