Tyco Case Flashcards
When did Tyco get into trouble?
After Enron
What did investigators notice about Tyco?
That they were in deep debt despite them reporting strong cash flow
Why was Tyco reporting strong cash flow?
They were misusing goodwill and spring loading
What 2 types of earnings management did Tyco use?
- The misuse of goodwill
2. Spring Loading
How did Tyco misuse goodwill?
When they acquired a company and they would record their assets as goodwill
What was the benefit of recording assets as goodwill?
Their value wouldn’t deteriorate over time, so they would make profit when they sold it in the future
What is Spring Loading?
Acquirign a new company and making them pay off all their debt before they merged
Who noticed Tyco’s fishy accounting practices?
William McLucas
What did Tyco do for Kozlowski?
They were paying for and recording Kozlowski’s personal expenditures as business expenses
Who was the CEO of Tyco?
Dennis Kozlowski
How was Tyco’s KELP program being misused?
Higher ups were using it to steal from the company
How were higher ups stealing from the company through the KELP program?
- It was used to pay for taxes
2. Executives were given loans for personal expenditures and for relocation
What did Kozlowski do when it was reported that he was being investigated for sales tax evasion?
He resigned
What were Kozlowski and Swartz tried and convicted of?
22 counts of grand larceny, conspiracy and securities fraud
What is the ethical dilemma in the Tyco case?
Should Tyco be misusing goodwill, spring loading, and paying for Kozlowski’s personal expenses?
