Accountants are the information-keepers in the financial realm who are trusted to audit companies, write balance sheets that represent the finances accurately and uphold the CPA code of honour. In the 21st century, several high-profile cases have rocked the financial world, revealing how manipulation, deception, and lack of oversight can lead to catastrophic consequences. Here’s a look at some of the biggest accounting frauds that have defined the century so far.

Enron (2001)

The Enron scandal is arguably the most infamous accounting scandal in history. Enron was a large energy company based in Houston Texas. At the peak of the company’s performance, Enron’s shares were at a high of 90.75 USD and just after the scandal was published the shares plummeted to 0.26 USD. In 1990, Jeffery Schilling was appointed to head the corporation. He transitioned the company’s accounting system from historical cost accounting to market-to-market type accounting.

The MTM accounting system measures fair value of accounts that change over time (like assets and liabilities) which enable companies to provide a more accurate measure of their financial status; it is an acceptable practice that is used by some companies to this date. However, Enron manipulated their MTM balance sheet; as the method relies on fair value, it is easier to falsely estimate the value of the company.

Enron's stock price soared until the truth came out, leading to its bankruptcy in December 2001. The scandal resulted in the loss of thousands of jobs, billions in investor funds, and a complete overhaul of U.S. financial regulations, including the Sarbanes-Oxley Act, which was designed to improve corporate governance and prevent such frauds in the future.

WorldCom (2002)

WorldCom, once the second-largest long-distance telecommunications company in the United States, became a poster child for accounting fraud in 2002. After the Enron scandal, people became suspicious of the company’s substantial growth in a short time span. In 2002, it was reported that the company borrowed 408 million dollars from the WorldCom board to cover margin calls in loans that were secured by the company’s stock. This fraudulent activity essentially made WorldCom appear far more profitable than it actually was. The company hid it’s true financial position by reporting an inflated net income statement and cash flow statement; it recorded it’s expenses as investments. It capitalized on expenses which allowed the company to exaggerate it’s income by almost 3.7 Billion dollars. It reported a net profit of 1.38 billion dollars instead of a net loss.  After the scandal was uncovered, CEO Bernard Ebbers was sentenced to 25 years in prison for his role in the scandal.

Lehman Brothers (2008)

Lehman Brothers, the fourth-largest investment bank in the U.S., collapsed in 2008, triggering the global financial crisis. In February 2007, Lehman Brothers' stock reached an all-time high of $86.18 per share, giving the company a market value of nearly $60 billion. However, by the first quarter of 2007, signs of trouble in the U.S. housing market were emerging, with subprime mortgage defaults hitting a seven-year peak. On March 14, 2007, just one day after the company's stock experienced its largest single-day decline in five years—fueled by concerns that the rising defaults would hurt Lehman’s profitability—the firm announced record revenues and profits for its fiscal first quarter. After the credit crisis began in August 2007, the stock price of the company fell and the company decided to eliminate over a 1000 mortgage related jobs; it had to shut down its BNC unit as well. In order to overcome the shock, the company underwrote their mortgage backed securities to 85 billion which was 4 times more than its equity. One of the key factors in Lehman's downfall was its misuse of "Repo 105" transactions—a form of accounting that allowed the firm to temporarily remove liabilities from its balance sheet, making its financial position appear healthier than it was. Lehman’s collapse led to widespread panic in the global financial system, costing billions and leading to a massive recession. The scandal has since been cited as a key example of how complex financial products and poor regulatory oversight can result in disaster.

These cases are just a few examples of the enormous impact accounting frauds can have on businesses and the wider economy. Whether through creative accounting tricks or outright deception, these scandals highlight the need for rigorous financial oversight and the importance of transparency in maintaining trust in financial markets. Each of these cases has had far-reaching consequences, prompting regulatory changes and renewed calls for corporate accountability.