Digitized Honors Theses (2002-2017)
Date of Award
5-2016
Document Type
Undergraduate Thesis
Degree Name
BS
Faculty Mentor
C. Terry Grant, Ph.D.
Advisor(s)
Carol Vann, Ph.D., Tom Noland, Ph.D.
Abstract
Earnings management (EM) is a classification of accounting techniques that affect reported earnings using activities that can be both legal and illegal. Examining the contributing factors that lead a business down a fraudulent path that initialJy began as the simple incorporation of legal earnings management is critical to the integrity and success of a corporation in a global economy. The purpose of this thesis is to examine Enron and WorldCom, two enterprises that became infamous for their fraudulent financial scandals, and gain a better understanding of the factors that contributed to the slippery slope of earnings management culminating in fraudulent financial activity. Enron and WorldCom illustrate that the use of legal earnings management is a gateway to the slippery slope that encourages fraudulent accounting practices, and the manipulation of financial figures and transactions. This qualitative study concludes that while EM is often legally implemented, the additional presence of intense pressures and opportunities is correlated to the express manipulation of EM and the development of a weak internal control environment. Rationalizations of fraudulent actions further promote the continuance of fraud. The Sarbanes-Oxley Act (SOX) of 2002 was passed in an attempt to provide for the better protection of investors by increasing independence and responsibilities of external auditors. While SOX 2002 has had a significant impact on the accounting profession and has strengthened internal controls, fraud continues and is a complex issue. Recognizing and identifying variables that may be conducive to unethical behavior is important for the development of effective internal controls that can mitigate the propensity of legal EM resulting in fraudulent activity. Therefore, this can increase investor and consumer confidence.
Recommended Citation
Smith, Taylor, "Slippery Slope: An Analysis of Financial Fraud" (2016). Digitized Honors Theses (2002-2017). 35.
https://jagworks.southalabama.edu/honors_theses-boundprint/35
Comments
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