Global Master of Accountancy Finals
Welcome to your Global Master of Accountancy Finals, your opportunity to make the world a richer place for yourselves and your paymasters (and hopefully for me too, your examiner)… The rules of this exam are simple, don’t rock the boat, do your job and, most importantly, apply due diligence with due discretion. Before the questions you will be provided with some light and digestible background information about one or two recent multi-national collapses. Following this you will be tested on your ability to clean up the mess.
Global Master of Accountancy Finals. Duration 3 hours. October, 2006.
Background Material
Read the following background passages carefully and take note of the technical errors that you are about to take on. Remember humans have a short memory, but can usually remember when a few $billions are misplaced. The golden rules are to draw out proceedings, bill for generous expenses, keep a poker face, and make sure that all money is properly ‘cleaned’ and accounted for at all times.
Andrew Fastow, former CFO of Enron, has just begun a six-year sentence for his role in the Texas energy firm’s little $30bn meltdown. This fiend and wholly guilty party has, regrettably, tried to implicate the two British Banks Barclays and RBS, claiming that these two noble British institutions did, in conjunction with Credit Suisse and Merrill Lynch, knowingly help to prop up Enron’s balance sheets. This creates a itsy bitsy little problem for your two banks as, if true, it might make your two banking clients liable for some $30 billion in losses being actively sought by Enron’s shareholders. Lined up against you is attorney Bill Lerach, the biggest shark ever to assault the good name of our financial institutions. Unfortunately for your clients, Lerach has smelt blood in the water and is looking for a good bite of tuna steak.
According to Fastow and the prosecution, in late 1997 Enron’s executives discovered that an outside investor was going to quit their newly formed venture Joint Energy Development Incorporated, or JEDI for short (straight-up this was apparently in homage to Star Wars and in no way reflects upon the mental age of the Enron Executives or their lust for supreme mastery of the galaxy). This Joint Venture ‘generated’ 40% of Enron’s ‘profits’ in 1997 and allowed some $700m in debts to be dealt with in the ‘fullness of time’. Given that JEDI was a separate entity for purposes of your accounting, Enron did not have to mention the $700m in its published accounts, or the equivalent of one Imperial Star Destroyer.
As the rebel investor’s hasty exit would have forced Enron to write off these hard earned profits and to acknowledge its debts, a new alliance was formed with the help of Barclays and Arthur Andersen, Sith Lord and chief accountant to Enron. This new vehicle was called Chewco (no kidding), after the Star Wars big shaggy dog character Chewbacca (no really, I am not kidding here…).
Barclays apparently lent Chewco some $240m which allowed Enron to claim a new ‘outside’ investor and to improve its 1997 profits by around $45m while deferring the acknowledgement of some $700m in debt. However Lerach claims to have in his possession many internal Emails and documents relating to RBS’s dealings with Enron, including the purchase and sale of a failing Brazilian power plant for $84m, which Fastow allegedly described as “a piece of shit no-one would buy”. The sale of the power plant however generated some $84m in ‘fictitious’ income for Enron, whilst burying a further $200m in debt. Note that the prosecution is ignorant and fails to appreciate either the genius or financial mastery of creative accounting.
In further great error of judgment and in apparent fear of Lerach, several banks, including the Bank of America & Fleet National Bank, have lost their financial nerve (the term shredded is forbidden due to the illegality of such machines), and have agreed to pay Enron almost $20m to settle the MegaClaims lawsuit filed against no fewer than ten banks accused of negligence. Understandingly, the remaining MegaClaims defendants, Citigroup, Deutsche Bank and Barclays are holding out and have summoned their remaining droid armies for a last ditch defence (as $30bn is more than enough to pay for a brand new Death Star...)
In a related story, Mark Abide has become the fifth WorldCom accountant martyr to be suspended from practicing his noble art. The Securities and Exchange Commission has suspended him for engaging in ‘improper’ accounting activities, a popular euphemism for losing large quantities of someone else’s money. Other than ‘making improper accounting entries’ on behalf of WorldCom so as to conceal ‘improperly capitalized expenses’, and encouraging others to do the same, (No Fixed) Abode is accused of selling 6,728 of his shares in WorldCom stock during a subsequent investigation before their value was wiped out in market free-fall.
Questions.
Section A. MCQ. Please select one of the following options and ring the correct answer. Just one. There is no need for joined-up writing or automated Excel spread sheet files as these cannot be taken into the exam room with you. Tough I know, but at least you may file for generous luncheon expenses and bill your time for sitting this exam at $300 per hour, as clearly this time spent proving your value may be deemed a loss of earnings potential. You have three hours to answer the questions, but may invoice for all of them, even if, due to your outstanding efficiency and productivity, you finish the exam within a half an hour and head off to play golf.
Question 1. The investigation covering the collapse of the Bank of Oil Exporters International (BOEI), which resulted in the disappearance of some $7.1 billion of investors’ money (although the governments of Oman, UAE, Kuwait and Saudi Arabia have subsequently vowed to operate their piggy banks more stringently), has asked you to perform a full forensic audit of all BOEI accounts. This is potentially embarrassing as your company in fact audited the accounts prior to the collapse of BOEI.
Do you?
(A) Shred all remaining BOEI records in your office.
(B) Smile with relief and accept the afternoon's work.
(C) Agree, but demand full access to all of your records and file for generous expenses.
Question 2. The corporate energy giant Energon has suddenly filed for bankruptcy after three years of profits in excess of $6 billion due to a collapse in share price. You have been asked to produce a corporate balance sheet detailing all of Energon's assets. You discover that Energon's only actual assets are three high rise city center skyscrapers in Dallas, Manhattan and Chicago, fifty-nine luxury beach condos in tropical locations, and a disused gasoline station in Cheyenne, Wyoming.
Do you?
(A) Shrug your shoulders and call in the realtor (estate agent).
(B) Sell the real estate yourself for $3.4 billion and label it expenses.
(C) Declare the market's reaction to be premature and hysterical and refloat the Corporation with a couple of hotels thrown in.
Question 3. The global telecommunications giant Worldmobile.com has just collapsed following an accounting error amounting to over $4 billion of unrealised income. You have been asked to replace the existing auditors and produce an explanation for the discrepancy.
Do you?
(A) Go through the office drawers looking for the $4 billion in case someone mislaid it.
(B) File through all the accounts hoping for some missing 0's.
(C) Demonstrate your creative accountancy skills and claim that the revised figure failed to take into account third quarter projected growth in mobile phone usage.
Essay Question. World Corporation (WorldCon), which specifically operates franchises for oil exports from Colombia and operates clean coal-fired power plants in the States of California and New Jersey, has asked you to audit their annual returns following an investment in a new off-shore drilling enterprise in Colombia. This has led to a surge in annual net profits from $2.1 to $11.3 billion. The breakdown of the growth in annual figures is given below. Can you successfully account for the WC annual return?
Expenses incurred in entertaining Colombian officials is itemised at $100 million for the fiscal year 2001-2002. Costs of oil pipeline section shipment to and from Colombia (for internal cleaning) is itemised at $43 million, with $150 million handling charges. The government of Colombia has borrowed $8.7 billion from WC for the costs of oil rig platform construction, $2.1 billion for infrastructure costs, and a further $1.5 billion for entertainment expenses at a cumulative annual interest rate of 27% APR. Due to economic stagnation and an ongoing civil war, the Colombian government has a shortage of funds and has delayed interest repayment for at least 5 years. This fiscal year oil exports (white powder form) exceeded 1,000 metric tonnes at $115,670 a kilo. Repair and maintenance is set at $450 million, and salaries, pensions and benefits at $1.05 billion. Account for the $9.2 billion growth in revenues assuming that both accrued interest and unpaid loans accredit the balance sheet positively.
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Before leaving the examination hall please shred all papers showing your calculations together with all receipts provided. Pick up your GMA certificate on the way out.
Many congratulations on successfully passing your Global Master of Accountancy Finals!
Global Master of Accountancy Finals. Duration 3 hours. October, 2006.
Background Material
Read the following background passages carefully and take note of the technical errors that you are about to take on. Remember humans have a short memory, but can usually remember when a few $billions are misplaced. The golden rules are to draw out proceedings, bill for generous expenses, keep a poker face, and make sure that all money is properly ‘cleaned’ and accounted for at all times.
Andrew Fastow, former CFO of Enron, has just begun a six-year sentence for his role in the Texas energy firm’s little $30bn meltdown. This fiend and wholly guilty party has, regrettably, tried to implicate the two British Banks Barclays and RBS, claiming that these two noble British institutions did, in conjunction with Credit Suisse and Merrill Lynch, knowingly help to prop up Enron’s balance sheets. This creates a itsy bitsy little problem for your two banks as, if true, it might make your two banking clients liable for some $30 billion in losses being actively sought by Enron’s shareholders. Lined up against you is attorney Bill Lerach, the biggest shark ever to assault the good name of our financial institutions. Unfortunately for your clients, Lerach has smelt blood in the water and is looking for a good bite of tuna steak.
According to Fastow and the prosecution, in late 1997 Enron’s executives discovered that an outside investor was going to quit their newly formed venture Joint Energy Development Incorporated, or JEDI for short (straight-up this was apparently in homage to Star Wars and in no way reflects upon the mental age of the Enron Executives or their lust for supreme mastery of the galaxy). This Joint Venture ‘generated’ 40% of Enron’s ‘profits’ in 1997 and allowed some $700m in debts to be dealt with in the ‘fullness of time’. Given that JEDI was a separate entity for purposes of your accounting, Enron did not have to mention the $700m in its published accounts, or the equivalent of one Imperial Star Destroyer.
As the rebel investor’s hasty exit would have forced Enron to write off these hard earned profits and to acknowledge its debts, a new alliance was formed with the help of Barclays and Arthur Andersen, Sith Lord and chief accountant to Enron. This new vehicle was called Chewco (no kidding), after the Star Wars big shaggy dog character Chewbacca (no really, I am not kidding here…).
Barclays apparently lent Chewco some $240m which allowed Enron to claim a new ‘outside’ investor and to improve its 1997 profits by around $45m while deferring the acknowledgement of some $700m in debt. However Lerach claims to have in his possession many internal Emails and documents relating to RBS’s dealings with Enron, including the purchase and sale of a failing Brazilian power plant for $84m, which Fastow allegedly described as “a piece of shit no-one would buy”. The sale of the power plant however generated some $84m in ‘fictitious’ income for Enron, whilst burying a further $200m in debt. Note that the prosecution is ignorant and fails to appreciate either the genius or financial mastery of creative accounting.
In further great error of judgment and in apparent fear of Lerach, several banks, including the Bank of America & Fleet National Bank, have lost their financial nerve (the term shredded is forbidden due to the illegality of such machines), and have agreed to pay Enron almost $20m to settle the MegaClaims lawsuit filed against no fewer than ten banks accused of negligence. Understandingly, the remaining MegaClaims defendants, Citigroup, Deutsche Bank and Barclays are holding out and have summoned their remaining droid armies for a last ditch defence (as $30bn is more than enough to pay for a brand new Death Star...)
In a related story, Mark Abide has become the fifth WorldCom accountant martyr to be suspended from practicing his noble art. The Securities and Exchange Commission has suspended him for engaging in ‘improper’ accounting activities, a popular euphemism for losing large quantities of someone else’s money. Other than ‘making improper accounting entries’ on behalf of WorldCom so as to conceal ‘improperly capitalized expenses’, and encouraging others to do the same, (No Fixed) Abode is accused of selling 6,728 of his shares in WorldCom stock during a subsequent investigation before their value was wiped out in market free-fall.
Questions.
Section A. MCQ. Please select one of the following options and ring the correct answer. Just one. There is no need for joined-up writing or automated Excel spread sheet files as these cannot be taken into the exam room with you. Tough I know, but at least you may file for generous luncheon expenses and bill your time for sitting this exam at $300 per hour, as clearly this time spent proving your value may be deemed a loss of earnings potential. You have three hours to answer the questions, but may invoice for all of them, even if, due to your outstanding efficiency and productivity, you finish the exam within a half an hour and head off to play golf.
Question 1. The investigation covering the collapse of the Bank of Oil Exporters International (BOEI), which resulted in the disappearance of some $7.1 billion of investors’ money (although the governments of Oman, UAE, Kuwait and Saudi Arabia have subsequently vowed to operate their piggy banks more stringently), has asked you to perform a full forensic audit of all BOEI accounts. This is potentially embarrassing as your company in fact audited the accounts prior to the collapse of BOEI.
Do you?
(A) Shred all remaining BOEI records in your office.
(B) Smile with relief and accept the afternoon's work.
(C) Agree, but demand full access to all of your records and file for generous expenses.
Question 2. The corporate energy giant Energon has suddenly filed for bankruptcy after three years of profits in excess of $6 billion due to a collapse in share price. You have been asked to produce a corporate balance sheet detailing all of Energon's assets. You discover that Energon's only actual assets are three high rise city center skyscrapers in Dallas, Manhattan and Chicago, fifty-nine luxury beach condos in tropical locations, and a disused gasoline station in Cheyenne, Wyoming.
Do you?
(A) Shrug your shoulders and call in the realtor (estate agent).
(B) Sell the real estate yourself for $3.4 billion and label it expenses.
(C) Declare the market's reaction to be premature and hysterical and refloat the Corporation with a couple of hotels thrown in.
Question 3. The global telecommunications giant Worldmobile.com has just collapsed following an accounting error amounting to over $4 billion of unrealised income. You have been asked to replace the existing auditors and produce an explanation for the discrepancy.
Do you?
(A) Go through the office drawers looking for the $4 billion in case someone mislaid it.
(B) File through all the accounts hoping for some missing 0's.
(C) Demonstrate your creative accountancy skills and claim that the revised figure failed to take into account third quarter projected growth in mobile phone usage.
Essay Question. World Corporation (WorldCon), which specifically operates franchises for oil exports from Colombia and operates clean coal-fired power plants in the States of California and New Jersey, has asked you to audit their annual returns following an investment in a new off-shore drilling enterprise in Colombia. This has led to a surge in annual net profits from $2.1 to $11.3 billion. The breakdown of the growth in annual figures is given below. Can you successfully account for the WC annual return?
Expenses incurred in entertaining Colombian officials is itemised at $100 million for the fiscal year 2001-2002. Costs of oil pipeline section shipment to and from Colombia (for internal cleaning) is itemised at $43 million, with $150 million handling charges. The government of Colombia has borrowed $8.7 billion from WC for the costs of oil rig platform construction, $2.1 billion for infrastructure costs, and a further $1.5 billion for entertainment expenses at a cumulative annual interest rate of 27% APR. Due to economic stagnation and an ongoing civil war, the Colombian government has a shortage of funds and has delayed interest repayment for at least 5 years. This fiscal year oil exports (white powder form) exceeded 1,000 metric tonnes at $115,670 a kilo. Repair and maintenance is set at $450 million, and salaries, pensions and benefits at $1.05 billion. Account for the $9.2 billion growth in revenues assuming that both accrued interest and unpaid loans accredit the balance sheet positively.
--------------------------------------------------------------------------
Before leaving the examination hall please shred all papers showing your calculations together with all receipts provided. Pick up your GMA certificate on the way out.
Many congratulations on successfully passing your Global Master of Accountancy Finals!
posted by The Angry Man at 2:53 PM
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