The problems of corporations such as Enron and WorldCom occurred because:?

Question

The problems of corporations such as Enron and WorldCom occurred because:

a. they failed to offer stock to executives to encourage profit-seeking decisions.

b. providing stock as part of executive compensation encouraged fraudulent practices designed to exaggerate profits and artificially inflate the value of the stock.

c. incompetent auditing failed to identify unprofitable practices.

d. the industries in which those companies operated were no longer profitable.

Answer 1

the answer is definately B

Answer 2

B. C maybe.  I also think there was incest between the executives and the CPA firms (C).  i.e. The corporation pays the CPA firm for the audit so the CPA firm has a vested interest in preserving their client but also owes the public an ethical duty to accurately report the records of the business.

AND E - Many people today think it is ok to break laws, deceive, cheat, and lie so long as they can make a buck.

Answer 3

The answer is B, the executives created false income reports to boost the value of their stock and thus making them richer. A is just an example of a solution to the principal-agent problem, C is a possible answer but not as good of an answer as B, and D is incorrect because the industry was not contracting at the time.