This video-based ethics case is titled "Going South: Lessons Learned from HealthSouth Fraud." The case is designed to help you all increase ethical awareness by exposing you to both the inner workings and aftermath of one of the largest corporate scandals in U.S. history. This case presents several key ethical lessons based on the story of the company’s former CFO and his transformation from active fraud participant to subsequent whistleblower. We will use this case as a source of a comprehensive and extensive discussion this week.

1. What were the balance sheet and income statement implications of HealthSouth’s aggressive revenue recognition tactics? Also, in what specific way did this scheme violate the revenue recognition principle?
2. What are the financial reporting motivations for capitalizing expenditures that should be classified as operating expenses? Please provide additional examples where other companies have used this (or a similar) strategy.
3. Weston explained that, in order to hide the fraud from auditors, the fraudulent entries were broken down into amounts small enough to fall beneath the audit scope. How might auditors combat this behavior, given the limited scope of a financial statement audit?
4. In your opinion, why didn’t the EY partner more fully investigate the whistleblower e-mail from Michael Vines? How might you have handled the situation differently?

Answer rating: 100% (QA)

Balance Sheet and Income Statement Implications of HealthSouths Aggressive Revenue Recognition Tactics The aggressive revenue recognition tactics used by HealthSouth had immediate implications on both ... View the full answer