Case Study: Nick Leeson and the Collapse of Barings Bank

In 1985, Nick Leeson had a job as a clerical work at Coutts & Co. The Coutts & Co is a private banking house in United Kingdom which own by aristocrat. This bank was a subsidiary of the National Westminster Bank. During that period, the stock markets were rising for several years and the bank were expanding into a new financial instruments coming in and demand for labor was high. During that time, Nick Leeson was the person who had many working class young men. After two years, Nick Leeson moved to Morgan Stanley, one of the US investment bank. Nick Leeson be a settlements clerk at that bank. Nick Leeson can absorb more knowledge about new derivatives market from that bank. In 1989, Nick Leeson was applying a for job at Baring Securities due to his own knowledge with trading in Japan, that time Nick Leeson was 22 yearsContinue reading

Case Study on Corporate Governance: WorldCom Scandal

Established in 1988, WorldCom was formed so that the strongest, most capable public relations firms could serve national and international clients, while retaining flexibility and client- service focus inherent in independent agencies. Through WorldCom, clients have on demand access to in-depth communication expertise from professionals who understand the language, culture and customs in the geographic areas of operation. WorldCom has 105 offices in 90 cities and 40 countries on five continents, more than 2000 employees and recorded revenue of US $ 243.5 million in 2008. In the 90’s WorldCom was involved in acquisitions and purchased over 60 firms. The complete financial integration of the acquired company must be accomplished, including an accounting of assets, debts, and a host of other financially important factors. WorldCom moved into Internet Traffic, controlling 50% of US Internet Traffic and 50% of the e-mails worldwide. In 1997, WorldCom and MCI completed a US $37 billionContinue reading

Ethics in Financial Reporting

Integrity is of utmost importance for a successful career in business and finance in the long run. Some believe that the world of finance lacks ethical considerations. Whereas the truth is that such issues are prevalent in all areas of business. The business environment in much of the world is reeling from the revelation of several financial scandals in the past few years. The optimism of the turn of the century has been replaced by scepticism and distrust. It will be discussed as to how we landed ourselves in this situation, what is being done to correct it, and what the future holds for us. Though Enron has been used as the poster-child for this purpose, breakdowns in accounting and corporate governance in Enron as well as in other companies will be discussed. Some companies that have encountered financial reporting problems will be discussed along with the role of auditorsContinue reading

Case Study on Financial Ethics: The Bernie Madoff Case

On December 11, 2008, as the arrest of Benard Madoff, the former non-executive chairman of NASDAQ and chairman of Bernard L. Madoff Investment Securities LLC, many investors, big firms, banks, charities, universities and even governments were in panic, realizing that they were involved in a giant financial fraud, ‘all just one big lie’. According to an official document on March 12, 2009 from the Department of Justice of United States, Madoff pleaded guilty to eleven felony counts related to a massive Ponzi scheme and faced a statutory maximum sentence of 150 years in prison. Actually, what Mr. Madoff did was simple; He continually paid high returns to existing clients with the funds injected by new investors without engaging in any form of legitimate investment activity and this is what people call ‘the Ponzi scheme’, named after Charles Ponzi who did such kind of financial fraud in 1920’s. However, it isContinue reading

Case Study on Corporate Governance: UTI Scam

Of all the recent encounters of the Indian public with the much-celebrated forces of the market, the Unit Trust’s US-64 debacle is the worst. Its gravity far exceeds the stock market downswing of the mid-1990s, which wiped out Rs. 20,000 crores in savings. The debacle is part of the economic slowdown which has eliminated one million jobs and also burst the information technology (IT) bubble. This has tragically led to suicides by investors. And then suspension of trading in US-64made the hapless investors more dejected at the sinking of this “super-safe” public sector instrument that had delivered a regular return since 1964. There is a larger lesson in the US-64 debacle for policies towards public savings and public sector undertakings (PSUs). The US-64 crisis is rooted in plain mismanagement. US-64 was launched as a steady income fund. Logically, it should have invested in debt, especially low-risk fixed-income government bonds. Instead,Continue reading

Basic Concepts of Earnings Management

Over the past two decades there has been collapses in corporate sector affecting various companies including Enron, American International Group (AIG), HIH Insurance and National Bank of Fiji. Due to these collapses, the need for proper management of the earning or revenue generated by the company has become the very significant part as main objective of every company. Along with this objective, managers of the organization have different incentives to manage the earning of the company. Management of earnings means structuring the financial transactions and statements in the manner so as to have maximum benefit. It tries to mislead the users of the financial statements by presenting the earnings as budgeted or thought by the management instead of presenting the actual performance made by the company during the period. The different incentives for earnings management are – increased managerial remuneration, management buyout and managing the regulatory concerns imposed by different authorities.Continue reading