Accoun ng scandals in brief

1. Global crossing scandal

 Global Crossing was a telecommunications company founded in 1997
 The company began its operations by acquiring existing telecommunications companies and building
networks in various countries.
 Connected 27 countries and more than 200 major cities.
 It quickly became a major player in the telecommunications industry.
 In 1999 Global Crossing: market value balloon to $47 billion out of $450 billion market of
telecommunication industry, despite of course never booking one pro itable year.
 Hidden underperforming units & failed deals.
 Dot-com bubble burst in 2001, which caused a decline in demand for Global Crossing’s services.
 The company was hit by a series of scandals, including accounting fraud, insider trading, and the sale
of underperforming assets. These factors led to the company iling for bankruptcy in 2002.
Dot com bubble burst:

www- world wide web – bug of 19 “99” to 20 “00”, Failure of lots new start-ups in internet &
telecommunication industries, Japan Recession, In lation & interest rate increase- constraint in money
supply.

2. Tyco international scandal

 Founded in 1960 by Aurther
 R & D service & later start production too & issued IPO
 Started working in different sector like electronics, ire & security:- business expanded
 Start acquiring small companies & growing rapidly
 FS overstated, Overstated pro it, Executives accused of giving interest free loan without
informing shareholders, Hidden illegal activities
 Huge loss of 2002

3. Case of Kingston Cotton Mill- 1896

 Manipulation by managing director
 Value of company’s stock overstated for many years to in late the company’s pro it
 Auditor relied on certi icate of stock valuation issued by managers
 Led to payment of dividend out of capital

Conclusion of case: “Auditor is a watchdog, not a bloodhound”

Q.N. “Auditor is a watchdog, not a bloodhound” comment

Ans: Hint

 Primary objective of audit is to express opinion on inancial statement of entity

 Secondary objective of audit is to detect & report misstatement due to fraud or error
 Primary responsibility for prevention, detection & correction of misstatement is that of
management & TCWG.
 Objective of auditor is not to hunt the misstatement unless there is something arouse
the suspicion regarding to misstatement, also audit may not disclose all misstatement
on FS due to inherent limitations of audit.
 Auditor cannot be held liable for non-detection of misstatement if he has conducted
audit with due care as per BPGA.