The Lucent Accounting Scandal

The Lucent Accounting Scandal

The need for sufficient internal control measures and transparency in the financial statements of a company

The case discusses the accounting frauds committed at the US-based telecommunications giant, Lucent Technologies Inc. (Lucent) during early 2000. It provides an insight into the ways by which the financial statements were manipulated at Lucent. It examines the loopholes in the financial management of the company and the price it had to pay for circumventing the provisions of law. The case examines the allegations against Lucent and its officers with reference to the Securities Exchange Act, 1934. Finally, the case throws light on the damage control measures taken up by the new CEO to improve the company’s performance and restore investor confidence.      

Issues:

  1. The need for sufficient internal control measures and transparency in the financial statements of a company

  2. The provisions of the laws with regard to finance-related scandals and the rigorous consequences for misleading the investors

  1. The importance of maintaining corporate integrity without succumbing to the temptation of short term benefits

  2. Analyse the issue of corrupt/unethical business practices and lack of good corporate governance, and the effect of the above on a company’s financial status and image 

  3. Discuss the role and responsibility of the senior executives, the board of directors and the external auditors and the nature and extent of the failure to avert the situation 

  4. Identify the loopholes in accounting systems and understand the methods employed by companies to manipulate their financial statements to their advantage 

  5. Differentiate between revenue and capital expenditure and the impact of misclassification on the financial position of a company

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