This case is an excerpt from a presentation given by former Chairman Arthur Levitt, Securities and Exchange Commission, the ‘‘Numbers Game,’’ to New York University Center for Law and Business, September 28, 1998.
Required
a. ‘‘Big Bath’’—Comment on how a ‘‘Big Bath’’ would have enabled WorldCom to cover up its fraud.
b. Why would writing off ‘‘in-process’’ Research and Development be similar to a ‘‘Big Bath’’?
c. How could a company use ‘‘allowance for doubtful accounts’’ as ‘‘Cookie Jar Reserves’’?
d. Speculate on how a company could use ‘‘Materiality’’ or disregard or partially disregard a specific accounting standard.