Recent years have witnessed some of the most significant accounting scandals in history. For each scandal listed in Exhibit 6.17, identify how balance sheet quality and earnings quality were impaired.

Transcribed Image Text:

Exhibit 6.17 Accounting Scandals (Problem 6.17) Scandal Alleged Accounting Wrongdoing Waste Management (1988; waste management industry) Enron (2001; energy) Falsely increased the useful lives of long-lived tangible assets Underreported balance sheet long-term debt Capitalized rather than expensed expenditures to WorldCom (2002; telecommunications) maintain transmission lines AIG (2003; health care) Lehman Brothers (2008; financial services) Booked debt as revenue Sold toxic assets (i.e., financial investments) to other banks with a buyback agreement, removing the toxic assets from its books Created fictitious revenue recognition journal entries Saytam (2009; IT and accounting services)