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Accounting: Rigas and Adelphia Case Study Essay

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Updated: May 14th, 2022

There are some recommendations, which could have played a crucial role in the earlier discovery of the case; they are as discussed below. First, the fact that Adelphia remained a family-run business, even though it was a publicly-traded company, was enough to raise some eyebrows (Jennings, 2012). The conduct of John Rigas was also questionable; he seldom turned a person down. He gave corporate jets to fly patients to hospitals for treatments and even sent checks to certain individuals he felt required help. This could have helped in discovering malpractices (Adelphia Communications, 2013).

The payment of taxes for both Rigas and Adelphia with one Adelphia check and the outrageous spending of the company could also be used as a recommendation for the discovery of the case. For example, the extravagant and large homes, the lavish classical corporate head office building, and the family apartments were an indication of fraud. The centrality in making decisions in the firm gave the Rigas family a chance to make vital decisions. Hence, this gave them unnecessary control over the whole firm and at the same time protected them in case of a bankruptcy of any subsidiary (Adelphia Communications, 2013).

The consequent drop in Adelphia’s stock and the inquisitiveness of a bond analyst, Merrill Lynch concerning the Rigases vast stock were just an addition to many circumstances, which indicated that something had gone wrong with the Adelphia and that the collapse was imminent.

Another recommendation for earlier discovery could have been based on the evaluation of the accounting system. According to investigations, the accounting system of Adelphia was found to have some defects. The accounting system overstated the subscribers, earnings, as well as indicated deficiency of internal controls. As a result, small firms owned by Rigas could show huge profits, yet the expenditure had to be shared with shareholders at Adelphia.

Moreover, the accounting system enabled the Rigases to manipulate financial records and add fictitious transactions such as boosting the total number of cable subscribers (Knapp, 2011).

The other recommendation for earlier discovery includes evaluation of additional borrowing made by the Rigases apart from what was known publicly before. This borrowing had to be spent on the purchase of Adelphia stock and buying expensive apartments in New York, which became the residence for the Rigas family. It was also used to buy holiday homes, pay for a trip to Africa for the Rigas family members, pay a $7000 memberships at a club, purchase three jets, and finance the family’s stake at Buffalo, which was considerably large. There was no longer a line separating family funds and corporate funds (Jennings, 2012).

A self-dealing pattern carried out by firms controlled by Adelphia also came to be known. For example, Adelphia bought its costly office furniture through Eleni Interiors that was owned by the Rigas and managed by the wife of John Rigas. The continued self-dealing did not end with the office furniture; Adelphia contracted for snow plowing and landscaping and leased cars through Rigas-controlled companies (Kranacher & Wells, 2011).

These findings are just a confirmation of what was happening in reality at Adelphia Communications. Investors should have been wary of the extravagances of the Rigases. The tax authority ought to have been suspicious when Adelphia paid tax on Rigas property. The investors should have questioned the number of the Rigases in the Board. These practices began with the birth of the company and had someone pointed out that something was off, the problems would have been identified and resolved in time (Mintz & Morris, 2011).

References

Adelphia Communications (2013). ADELPHIA COMMUNICATIONS. Web.

Jennings, M. (2012). Business ethics: Case studies and selected readings. Australia: South-Western, Cengage Learning.

Knapp, M. C. (2011). Contemporary auditing: Real issues and cases. Australia: South-Western/Cengage Learning.

Kranacher, M.-J., Riley, R., & Wells, J. T. (2011). Forensic accounting and fraud examination. Hoboken, N.J: John Wiley.

Mintz, S. & Morris, M., (2011). Ethical Obligations and Decision Making in Accounting: Text and Cases. (2nd ed.) McGraw-Hill: Boston

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