Case Analysis Of Healthsouth Corporation

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Summary HealthSouth Corporation, established in 1984, is a health care company and also the largest owner and operator of inpatient rehabilitative hospitals in the United States. This company links orthopedic hospitals and outpatient centers and provides high quality service to patients. However, in 2003, an accounting scandal appeared in HealthSouth; Richard M. Scrushy, the chief executive officer (CEO) of HealthSouth, was accused for improperly reporting corporate earnings in order to satisfy the shareholder?s expectations. The investigation revealed that?Scrushy and other executives in HealthSouth falsely prepared the financial statements and made up numbers, so earnings was inflated $1.4 billion from 1996 to 2003. Scrushy was caught after …show more content…
At the time, the company was a small start-up that needed to meet the expectations set by Wall Street to be able to grow into a successful business. His rationalization was that ?We are a startup company. We cannot let the Street down. They believe in us. We will catch it up next quarter.? The rationalization for such an act started with the small amount of $40,000. This dollar amount was the shortfall from expected earnings per share that HealthSouth decided to add to their financials while hoping to ?catch it up next quarter.? At this point, the company worked on cooking their books every financial reporting period to meet the expectations of Wall Street. This was done by Scrushy?s tone of always wanting to meet these expectations. This way of thinking spread among the executives and their subordinates at the …show more content…
Many company frauds are done by capitalizing expenditures that have future benefits to overstate assets. This was strategy also used by the financial employees at HealthSouth. This was done to push off realizing the expenses to future periods of high revenues. Since startup costs are eligible for capitalization, the accountants would capitalize all costs for new facilities for period of six months. They would also capitalize costs from existing facilities under the fact that they provide services to the new facilities. As for acquisition accounting, they accountants would understate net assets when acquiring a company to overstate goodwill. They would then use the understated assets to add their fraudulent entries to help bring them back to their true value while also increasing net

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