An Overview of Financial Management Please respond to the fo

An Overview of Financial Management\" Please respond to the following:

* From the e-Activity, examine ethical behavior within firms in relation to financial management. Provide two (2) examples of companies that have been guilty of ethics-based malfeasance related to financial management and determine why their comeuppance was deserved.

Use the Internet to locate examples of companies that have been guilty of ethics-based malfeasance related to financial management. Be prepared to discuss.

Solution

1. Waste Management Inc., Houston based waste mgmt company reported fake earnings of $1.7billions in 1998. This was achieved by falsely increasing the depreciation period for the company’s Plant, property & equipment (PP&E) which falsely boosted their earnings. This was achieved with the help of auditors Arthur Anderson Company which was later fined for its illegal activity. Waste Management had to settle a shareholder suit of $457million which is justified considering the breach of trust of the shareholders.

2. Worldcom (now MCI Inc), a telecommunications company was involved in a scandal in 2002 wherein they inflated the company’s earnings by $11billion. This led to a loss of $180billion for the investors. The CEO was involved in this scandal and he achieved this by capitalizing the costs of line items instead of expensing them along with making fake revenue entries and thus inflating revenues. Post this scandal, the CEO Bernie Ebbers was fired and was sentenced to 25 years in jail for fraud. Interestingly, the famous Sarbanes Oxley Act which protects the interest of shareholders from fraudulent activities of companies, was passed after this very scandal.