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Autonomy Corporation Accounting Scandal
What fraud or other financial malfeasance took place?
Hewlett Packard on November 20, 2012 delivered a statement against Autonomy's unmentioned members of the previous management team accusing them of final impropriety. The shocking thing about the turn of events was that HP had accused the un-specified members of huge allegations and that too without any contact or notice to the Autonomy's CEO (Autonomy Accounts, 2012). However, all the allegations were denied by the Autonomy who during the past as the company of public had handled its finances according to the applied practices and regulations. These practices were also checked on by Deloitte LLC which is an independent auditor and it confirms the applicable procedures which were also commanded by the IFS used in the United Kingdom (Autonomy Accounts, 2012).
A lot of spectators were shocked by the claims made by HP regarding the allegations which make…
Autonomy Accounts. (2012). Mike Lynch publishes an open letter to Hewlett-Packard. http://autonomyaccounts.org/an-open-letter-to-hp/
BBC. (2011). Hewlett-Packard completes Autonomy buyout. http://www.bbc.co.uk/news/business-15161453
De La Merced, M. (2012). Autonomy's Ex-Chief: H.P.'s Claims 'Completely and Utterly Wrong'. http://dealbook.nytimes.com/2012/11/20/autonomys-ex-chief-h-p-s-claims-completely-and-utterly-wrong/
Hardy, H. And De La Merced, M. (2012). Hewlett's Loss: A Folly Unfolds, by the Numbers. http://dealbook.nytimes.com/2012/11/20/h-p-takes-big-hit-on-accounting-improprieties-at-autonomy/?_php=true&_type=blogs&_r=0
$2.65 billion. That is the amount the investment Citigroup agreed, less than a year ago, to pay to investors who had bought stock and bonds in the telecommunications giant orldCom before its bankruptcy filing two years ago. If the adage that 'crime does not pay' is not always true, it is certainly valid when estimating the tremendous cost the orldCom and Enron investing and accounting scandals have cost employees, investors, shareholder, and ordinary consumers. (Morgenstern, 2004)
The Citigroup settlement was the second-largest amount ever paid to settle a securities class action. It was the largest settlement ever granted by a bank, brokerage firm or auditor to settle a fraud case brought about by investors alleging that they had been deliberately mislead to buy securities issued by an outside corporation. Citigroup denied that it violated any laws when encouraging investment in orldCom. Rather, it stated that it agreed to…
BBC. (27 Jan 2005) "Enron bosses agree $168m payout." BBC News. Business Report. Retrieved 21 Feb at 2005 http://news.bbc.co.uk/1/hi/business/4159343.stm
Citigroup Press Release. (10 May 2004) "Citigroup Reaches Settlement on WorldCom Class Action Litigation for $1.64 Billion After-Tax." Citigroup Official Website. Press Releases. Retrieved 21 Feb at http://www.citigroup.com/citigroup/press/2004/040510a.htm
Morgenstern, Gretchen. (11 May 2004) "Citigroup agrees to a settlement over WorldCom." The New York Times. Business Section. Retrieved 21 Feb at http://www.nytimes.com/2004/05/11/business/11CITI.html?ei=5007& ; en=eceb7f0816389d10& ex=1399608000& adxnnl=1& partner=USERLAND& adxnnlx=1108990924-mADzfFbri1DqH7r5qzkmNw
O'Brien, Tim. (11 May 2004) "Citigroup Assesses a risk and decides to settle." The New York Times. Retrieved 21 Feb at http://www.nytimes.com/2004/05/11/business/11place.html?ex=1109134800& ; en=1da7c18b036a75fb& ei=5070
Olympus Accounting Scandal
In economic boom that occurred in 1980s, a lot of Japanese enterprises struggled to sustain sales in international market because of the strong yen. Akin to several other businesses, Olympus offset its decreasing sales by participating in offshoots and non-core businesses, promoted by low rates of interest and easy credit access. After the Japanese bubble burst, the company sustained huge losses on its various investments, amounting to around $1.3 billion.
In an attempt to avoid revealing this loss within the enterprises' merged financial statements, Olympus traded the loss-making assets through specific modes that were never included in its books. The practice was relatively common in Japan in 1990s and in early 2000s; thus, to oblige with shifts in Japanese accounting guidelines' requirements in 2008, Olympus' senior management try to protect its tracks (oss, 2012).
In order to avoid revealing the hidden losses before the onset of new…
Aronson, B. E. (2013). The Olympus Scandal and Corporate Governance Reform: Can Japan Find a Middle Ground between the Board Monitoring Model and Management Model? ZeitschriftfurJapanischesRecht, 18(35), 85-106.
Cohn, M. (2012). Olympus Whistle-blower to Be Honoured. Retrieved 13 April 2016 from http://www.accountingtoday.com/blogs/debits-credits/Olympus-Whistleblower-Honored-61913-1.html
Fraud in Financial Statements: Olympus (n.d.). Retrieved 13 April 2016 from http://clubs.cob.calpoly.edu/~cmiller/552/cases%20without%20teaching%20notes/Olympus%20-arline.pdf
Greenfeld, K. T. (2012). The Story Behind the Olympus Scandal. Retrieved May 04, 2016, from http://www.bloomberg.com/news/articles/2012-02-16/the-story-behind-the-olympus-scandal
It is hypothesized that regular TM practice will bolster ethical decision-making and ethical reasoning, especially as those skills relate to the accounting profession. Moreover, TM should have a measurable effect on personal value systems, measured by the Rokeach Value Survey (RVS). Moral judgment will be measured by the Define Issue Test (DIT) and the Socialmoral Refection Measurement- Short Form.
If, as hypothesized, TM creates a measurable effect on personal value systems and moral judgment in the population sample of accounting students, then this research has profound implications for the profession including the following. First, the effects of TM would improve the caliber of practice and therefore improve the reputation of the accounting profession. Second, educators could incorporate ethical discourse into accounting school curriculum and/or incorporate TM practice to accomplish the same goals. It is believed that an improvement in moral and ethical judgment will have a positive impact on the…
Toshiba’s Accounting Scandal: Business Ethics and the Media
Along with Sony, the Toshiba Corporation is one of the most legendary and famous Japanese technology companies in the world. According to the “History of Innovation” section of its official corporate website, Toshiba boasts a long, proud 135-year technological history. In the past thirty years, the company has given birth to the first laptop computer for the average consumer, the first wireless laptop, and the world’s thinnest widescreen laptop (“History of Innovation,” 2017). It has also boasted groundbreaking innovations in DVDs, televisions, and other consumer products. Yet while Toshiba has been trusted for many years to produce high-quality products, it has also boasted a highly insular culture of loyalty that has fostered a breeding ground of corruption (“History of Innovation,” 2017). Toshiba was recently beset by a serious accounting scandal that tarnished the reputation of the corporate giant. In the wake of…
History of innovation. (2017). Toshiba. Retrieved from:
McLaverty, C. & McKee, (2016). What you can do to improve ethics at your company. Harvard
Business Review. Retrieved from: https://hbr.org/2016/12/what-you-can-do-to-improve- ethics-at-your-company
Sargeant, N. (2017). What is the difference between principles-based and rules-based
accounting? Investopedia. Retrieved from: http://www.investopedia.com/ask/answers/06/rulesandpriciplesbasedaccounting.asp
Singh, M. (2015). Toshiba accounting scandal: A corporate culture problem. CFA Institute.
Retrieved from: https://blogs.cfainstitute.org/marketintegrity/2015/10/30/toshiba - accounting-scandal-a- corporate-culture-problem/
Accounting is the language of business. It allows shareholders, creditors and stakeholders and management gauge the overall performance of the business enterprise. Through the results of this financial evaluation, potential investor or creditors can better assess the economic realities facing the company. This allows for society to make better informed decisions as it relates to capital distribution. Well run companies that earn high returns on capital, often garner of higher share of societies financial capital. Likewise those business or industries that don't earn a high enough return to compensate investors for the risks they are taking, do not obtain large amounts of capital. The technology industry for example, earns a high returns on capital and can therefore earn large inflows of investor capital. The airline industry however, earns abysmal rates of return and can therefore have a hard time raising capital. Accounting forms the basis of this decision making on…
1) Cellan-Jones, Rory (November 2, 2005). "The end of an epic." BBC News (BBC).
2) Emshwiller, John and Rebecca Smith, 24 Days: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America or Infectious Greed, HarperInformation, 2003, ISBN 0-06-052073-6
Sarbanes-Oxley stipulates criminal and civil penalties for securities violations. Also, it mandates auditor independence from the interests of the firm, meaning that accountants cannot have a financial interest in the success or failure of the firm. Additionally, it mandates the certification of internal audit work by external auditors and mandates increased disclosure regarding executive compensation, insider trading and financial statements, in the interest of making more information public to investors. ("Sarbanes-Oxley Compliance," Technet 2005) Although the act is not a panacea, increased objectivity on the part of auditors and greater insistence on free and fair disclosure on the part of firms will hopefully ameliorate the some of the hiding of vital information that created the climate of secrecy within the firms of Enron and orldCom that helped give rise to the 2002 scandals.
Sarbanes-Oxley Compliance." (2005) Technet. Retrieved on 23 Oct 2005 at http://www.techlistings.net/xlist/tech/bizsoft/compliance/sox?id=1
Sarbanes-Oxley. (2002) Law retrieved…
Sarbanes-Oxley Compliance." (2005) Technet. Retrieved on 23 Oct 2005 at http://www.techlistings.net/xlist/tech/bizsoft/compliance/sox?id=1
Sarbanes-Oxley. (2002) Law retrieved by findlaw on 23 Oct 2005 at http://news.findlaw.com/hdocs/docs/gwbush/sarbanesoxley072302.pdf
Accounting has been nothing if not a dynamic, global discipline over the last two decades. The role of the accountant has changed dramatically during that time and will continue to do so -- as will the nature of the challenges that the accounting profession faces"
Over the past twenty years, the modern business community has been faced with the challenges of globalization, the new predominance of technology in business affairs, and the creation of a service-based 'knowledge economy' versus a manufacturing-based one. The profession of accounting has had to adapt to this new environment. "Business internationalization and globalization has facilitated the transfer of capital and information across national borders, with economic power residing in holders of particular knowledge sets. Business and management location is becoming increasingly irrelevant and management and accounting work is becoming multidisciplinary" (Parker 2002).
Globalization has lead to more uniform regulations in accounting. Until recently, U.S. accountants…
GAAP'S Last Stand IFRS is no rumor -- welcome to the next phase of financial reporting.
2011. Periso. Accessed:
http://perisho.com/keeping-current/gaaps-last-stand-ifrs-is-no-rumor-welcome-to-the-next-phase-of-financial-reporting / [June 23, 2011]
Parker, Lee D. 2002. Reinventing the managerial accountant. Glasgow University.
Accounting includes recording, summarizing, and reporting of the economic activities and events of an organization. It is pertinent in business decision-making and the management and control of operations. The financial statements reported by a company include the income statement, balance sheet, statement of retained earnings and statement of cash flows. Globally, there are two sets of accounting standards, the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). In particular, the GAAP are more often than not employed in the United States whereas IFRS are more often than not employed in Europe and international expanses. IFRS are regarded as being more principles-based and U.S. GAAP as being more rules-based. The establishments responsible for setting the IFRS and GAAP are the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) respectively (Gaspar et al., 2016). The purpose of this paper is to discuss the difference between GAAP…
In aaccounting research, the model used would be called analytical modeling, which consists of sstudies that use models with no specific underlying economic theory but use mathematical techniques. The mathematical formulas are applied to test and establish laws and accounting practices. Simulation, or the practice where the analysis is so complex that it requires a computer, is also an example of an inductive accounting practice research methodology.
Finally, pragmatic research utilizes pragmatic validity, which views research from a prescriptive-driven perspective. For example, solutions to problems that actually occur in the complex and high field of practice are developed in a way that, while valid for a specific situation, need to be adjusted according to the context in which they are to be applied. In the accounting area, general empirical research is a catchall that includes primarily descriptive empirical work. Another example of an accounting research methodology that consists of pragmatic…
Blaikie, N. (2007). Approaches to Social Inquiry. ISBN 0745634486.
Fleming, R., Graci, S. & Thompson, J. (2000). Dawning of the Age of Quantitative/Empirical Methods in Accounting Research. The Accounting Historians
Journal. (June 2000).
Accounting Theories and usiness Decisions: The usiness World
Application of theories
Other cases of stakeholder theory application
Accounting theories and business decisions: The business world
There are many theories that explain the complexity of relationship between different groups of people directly and indirectly related to an organization. Two of the most comprehensive and most discussed theories are stakeholder theory and agency theory. oth the theories describe what the main purpose of each group is and how these groups ought to manage these relationships. In agency theory, it identified that agency relationship takes place when one or more than one principal, acting as owners, delegate their power to make decisions, to a person acting as their agent or steward. Thus, agency theory principally revolves around the relationship of principal and agent. While the principal delegates the authority or decision making power to agent (managers) to act in the best…
Alessi, Chirstopher. 2013. "Understanding the LIBOR Scandal." Council on Foreign Relations, Feb 6. Accessed August 23, 2013. http://www.cfr.org/united-kingdom/understanding-libor-scandal/p28729
Dean, Cornelia. 2007. "Executive on a mission: saving the planet." New York Times, May 22. Accessed August 23, 2013. http://www.nytimes.com/2007/05/22/science/earth/22ander.html?pagewanted=all&_r=0
Jensen, Michael C. 2010. "Value maximization, stakeholder theory, and the corporate objective function." Journal of applied corporate finance 22: 32-42.
Kanter, Rosabeth Moss. 2011. How great companies think differently. Harvard Business Review, November. Accessed August 24, 2013. http://hbr.org/2011/11/how-great-companies-think-differently/ar/2
In this case, it was a $4.9 billion bank account. However, credit would have been granted against an asset like that. Finding such an account did not exist, banks would have wanted their money back, and Parmalat would not have had it. This would be grounds to take the company into insolvency, especially if somebody at Parmalat was counting on that account to pay off its debts.
4. These fraudulent activities, as noted, would have boosted the accounts receivable at Parmalat, and could potentially have reduced the inventories as well. The effect on the balance sheet, if the inventories were not affected, would have been to boost the a/R and therefore the current assets. As a result, the quick ratio would have improved, on the basis of an inflated accounts receivable.
5. Citicorp was a victim here. There are some controls that can be done to ensure that the financial…
No author. (2004). File suggests double-billing by Parmalat. New York Times. Retrieved April 6, 2012 from http://www.nytimes.com/2004/02/02/world/files-suggest-double-billing-by-parmalat.html
However, when a shock happens that changes that pattern, the information is no longer relevant. In periods of turmoil, only the most up-to-date information is relevant. The usefulness of the information wanes quickly as the behavior of the company becomes more erratic. After a period of erratic behavior and change, the company may be forced to make internal changes that affect the way they do business. They may make changes that affect their inventory management, sales cycle, stock levels, supply chain, distribution network or other fundamental business functions. New patterns may emerge and the old information no longer applies.
The term "relevancy" can have many different meanings depending on what is happening with the company. A new accounting regime may need to be instituted when a change takes place. Looking at the most recent historical information is one way to determine the relevancy of the accounting information. The analyst needs…
Cadwalader, Wickersham, & Tact LLP. 1999. Application of the Safe Harbor for Forward-
Looking Statements. Findlaw. Accessed April 23, 2009
Giroux, G. (n.d.). American Big Business and Cost Accounting. In a Short History of Accounting and Business. Accessed April 23, 2009
The CEO of Martha Stewart Living Omnimedia, Inc., Sharon L. Patrick, issued a press release in October: "Despite the losses in the quarter, we continue to benefit from strong consumer support for our products, which offer that unique blend of 'Martha Stewart' brand attributes - inspirational 'how-to' ideas translated into products that stand for quality, style, usefulness and affordability," Patrick reported.
During the 3rd Quarter of 2004, Stewart's company purchased "Body and Soul" magazine, and Patrick also announced that Stewart will launch a new television show; and Mark Burnett Productions will "develop and produce a primetime network television series" set to launch in the fall of 2005 (Burnett is the producer of "Survivor").
Current assets for Martha Stewart Living Omnimedia, Inc., as of Sept. 30, 2004, were $179,298. Current Liabilities for the same period, $61,815. That is a plus $117,483.
For the year ending 2003, "net cash provided by (used…
This role is in response to clients' demands for a single trustworthy individual or firm to meet all of their financial needs. However, accountants are restricted from providing these services to clients whose financial statements they also prepare." (U.S. Department of Labor, ureau of Labor Statistics, 2009)
1. Public Accounting
The work entitled: "The Reality of the CPA's Role" states that modern CPAs work "behind the scenes as trusted advisors in nearly all significant business decisions. Successful accountants display the ability to think strategically and creatively and to be problem solvers and business advisors." (Douglass, 2006) Douglass states that the views of the CPA are widely varied "...whether from the viewpoint of the investing public or from the perspective of the companies that engage CPAs to audit their financial statements or perform other functions. In fact, many people not involved in the business management or accounting profession may perceive CPAs…
Douglass, Kevin (2006) the Reality of the CPA's Role New Jersey CPA Magazine, April 2006. Accounting and Auditing. Online available at: http://www.amper.com/publications/amper-cpa-role.asp
Erard, Brian (1992) Taxation with Representation: An Analysis of the Role of Tax Practitioners in Tax Compliance. Journal of Public Economics 52 (1993) 163-107. North-Holland. Online available at: http://aysps.gsu.edu/isp/files/ISP_SUMMER_SCHOOL_2008_ERARD_TAXATION_WITHOUT_REPRESENTATION.pdf
Financial accounting for Local and State School Systems (2005) Chapter 4: Governmental Accounting. National Center for Education Statistics. U.S. Department of Education, Institute of Education Sciences. Online available at: http://nces.ed.gov/pubs2004/h2r2/ch_4.asp
Garrison, Ray H. And Noreen, Eric W. (2009) What is Managerial Accounting/Cost Accounting. Accounting Management. Online available t: http://www.accountingformanagement.com/
The reality was that a company which aspired to be "the No. 1 stock on all Street" was instead steadily bleeding money while claim growth in the billions.
The pressure placed upon accountants at ordCom was reflective of the pressure facing accountants throughout the economy during this period of widely absence securities oversight. Indeed, the relationship between regulation and accounting is essential, and this diminished link would have catastrophic implications for the profession as a whole. Such is shown by the Scott text, which tells that "efficient securities market theory has major implications for financial accounting. One of these is that supplementary information in financial statement notes or elsewhere is just as useful as information in the financial statements proper. Another is that efficiency is defined relative to a stock of publicly known information. Financial reporting has a role to play in improving the amount, timing, and accuracy of this…
Kaplan, R.S. & Kiron, D. (2007). Accounting Fraud at WorldCom. Harvard Business School.
Scott, W.R. (2006). Financial Accounting Theory, 4th Ed. Pearson-Prentice Hall.
Skeel, D. (2005). Icarus in the Boardroom: The Fundamental Flaws in Corporate America and Where They Came From. Oxford University Press.
studied appeared a business accounting publications. A partial list publications article selected: The Accounting eview, Barrons, Wall Street Journal, Business Week, Fortune, Barrons, and Wall Street Journal.
GAAP article review:
Crovitz, Gordon L. (2008, September 8).Closing the information GAAP. The Wall Street
Journal. etrieved November 22, 2010 at http://online.wsj.com/article/SB122083366235408621.html
GAAP article review:
Crovitz, Gordon L. (2008, September 8).Closing the information GAAP. The Wall Street
Journal. etrieved November 22, 2010 at http://online.wsj.com/article/SB122083366235408621.html
The Wall Street Journal is famous for its pro-business, conservative editorials. So perhaps it is no surprise that in 2008, Journal editorial writer Gordon L. Crovitz praised the Securities and Exchange Commission (SEC)'s decision to mandate a shift to international accounting standards, in a phasing out of GAAP (Generally Accepted Accounting Principles) by 2016 for all U.S. firms. The Journal writer said that this was reflective of the "remarkably quickening pace of acceptance of a true lingua franca for…
Crovitz, Gordon L. (2008, September 8).Closing the information GAAP. The Wall Street
Journal. Retrieved November 22, 2010 at http://online.wsj.com/article/SB122083366235408621.html
Gibson, Scott. (2008, October). LIFO vs. FIFO: A return to the basics. RMA Journal. Retrieved November 22, 2010 at http://findarticles.com/p/articles/mi_m0ITW/is_2_85/ai_n14897182/
Another challenge facing the industry today is the important legal issues that surround the Sarbanes-Oxley Act (Koehn & Del Vecchio, 2004). One of these is the fact that the process of due diligence practiced by many companies is now taking much longer (Koehn & Del Vecchio, 2004). There is a higher degree of caution than was previously utilized and because of this many companies are discovering information that would have gone unnoticed before the Act was passed. This is, however, not the only legal issue that the Sarbanes-Oxley Act has caused (Koehn & Del Vecchio, 2004). Another concern is that accountants and attorneys could now be required to report the known wrongdoings of corporations that they have business with to authorities.
Since lawyers are now required to disclose these types of issues, the attorney-client privilege has been compromised by this Act (Koehn & Del Vecchio, 2004). However, the Act was…
Bradley, C.F. (1994). An empirical investigation of factors affecting corporate tax compliance behavior. Ph.D. dissertation, the University of Alabama.
Koehn, J.L. & Del Vecchio, S.C. (2004). Ripple effects of the Sarbanes-Oxley Act. The CPA Journal: 36-40.
Roper, J.C. (2006). Expert backs Enron's accounting practices. Houston Chronicle. Retrieved from http://www.chron.com/disp/story.mpl/front/3839212.html .
unbeam Corporation's fraudulent accounting for its financial years 1996, 1997 and early 1998. The essay also reviews the historic audit failure that occurred, and discusses factors that contributed to the scandal and ways in which it might have been prevented.
unbeam, the consumer brand name that was to become well-known among generations of Americans, had its beginnings in 1893 when founders John K. tewart and Thomas J. Clark began manufacturing and selling a commercial horse clipping machine in Chicago. In 1897 the company was incorporated as the Chicago Flexible haft Company. When the company began manufacturing an electric iron named "The Princess," its first electric appliance, the product's introduction marked the beginning of the Electrical Appliance Division of today's Jarden Corporation (Jarden, 2011).
In the early years, the company's products, ranging from toasters to irons to mixers, were so successful that the company changed its name to the unbeam Corporation…
Securities and Exchange Commission. (1999). SEC Staff Accounting Bulletin: No. 99 -- Materiality. [online] Available at: [Accessed 23 December 2011].
Stanwick, S. And Stanwick, P. (2003). Sunbeam Corporation: "Chainsaw Al" and the Quest for a Turnaround. Auburn University. [online] Available at: [Accessed 23 December 2011].
Zabel, R.B. And Benjamin, J.J. (2002). Reviewing Materiality in Accounting Fraud. New York Law Journal. [online] Available at: [Accessed 23 December 2011].
Ethical Issues in AIS
Ethical Issues in Accounting Information Systems
This essay examines ethical issues in accounting information systems as presented in the case of DHB Industries. Now known as Point Blank Solutions, the company, which supplied body armor to the U.S. military and law enforcement agencies, was charged by the SEC on March 1, 2011 for engaging in "massive accounting fraud" (SEC, 2011). The agency filed separate charges against three of the company's former outside directors and audit committee members for their complicity in the fraud.
According to the SEC, DHB Industries engaged in "pervasive accounting and disclosure fraud through its senior officers" (2011), along with misappropriating company assets to the personal benefit of the company's former CEO. Their accounting and disclosure fraud resulted in the company's filing "materially false and misleading periodic reports to investors" (2011). The SEC charged that the company's senior management manipulated the company's reported…
Cohn, M. (2011, November 10). Body armor execs settle accounting fraud charges. Accounting Today for the Web CPA. Retrieved January 13, 2012 from: http://www.accountingtoday.com/news/Body-Armor-Execs-DHB-Point-Blank-Settle-Accounting-Fraud-Charges-60767-1.html
Gantt, K., Generas, G., & Lamberton, B. (2007, September). Sarbanes-Oxley, accounting scandals, and state accountancy boards. The CPA Journal online. Retrieved January 13, 2012 from: http://www.nysscpa.org/cpajournal/2007/907/essentials/p18.htm
Norris, F. (2011, March 3). For boards, S.E.C. keeps the bar low. New York Times website. Retrieved January 13, 2012 from: http://www.nytimes.com/2011/03/04/business/04norris.html?pagewanted=all
Securities and Exchange Commission. (2011, February 28). SEC charges military body armor supplier and former outside directors with accounting fraud. Retrieved January 13, 2012 from: http://sec.gov/news/press/2011/2011-52.htm
This leads to the inability to compare financial statements reliably with each other (Seay & Ford, 2010). A second concern is that the income statement will reflect increased volatility due to fair market writeups or writedowns. The third concern is the inconsistency in valuing some assets and liabilities at the current exit price. The fourth concern is whether price reflects the intrinsic value of the asset. It is suspected that price and value will differ, particularly in a downward trending market (Seay & Ford, 2010).
These concerns will affect the acceptance of fair value accounting and its ability to restore trust in the transparency and accuracy of accounting statements. According to Seay & Ford, many blamed fair value accounting for the collapse of the banking industry. However, they remind readers that the accountant only reports the information and that they were not to blame in the banking industry collapse.
Bedard, J. & Gendron, Y. (2010). Can audit committees deliver? CA Magazine; Sep 2010; 143 (7). 50-53.
Gates, S., Lowe, D. & Reckers, P. (2007). Restoring public confidence in capital markets through auditor rotation. Managerial Auditing Journal. 22 (1): 5-17.
Seay, S. & Ford, W. (2010). Fair Presentation -- an Ethical Perspective on Fair Value Accounting Pursuant to the SEC Study on Mark-to-Market Accounting. Journal of Legal, Ethical and Regulatory Issues, 13 (1): 53-66.
Thomason, M. (2009). Auditing the PCOAB: A Test to the Accountability of the Uniquely Structured Regulator of Accountants. Vanderbilt Law Review. 62 (6): 1954-1989.
Q1. How have accounting techniques changed in recent years? How do they resemble practices in Italy during the Renaissance?
According to McCrie (2016), one of the great innovations which emerged during the Renaissance was that of double-entry bookkeeping. This technique, still used today, records the organization’s assets in one column or book versus liabilities, or claims on those assets (p.252). The term “dual entry” came into practice given both records were listed in dual columns. Still, some substantial innovations have taken place since the early days of double-entry bookkeeping, most notably the advent of technology such as computers to compute assets and store data. The actual book of originally-recorded assets in real time now called a journal and the book which records the cumulative data is called a ledger. Debits and credits are the terms are now the preferred terms for assets and liabilities. But while terminology has changed and…
Prior to the corporate financial scandal, WorldCom was one of the largest long distance telephone companies (euters, 2003). Initially headquartered in Mississippi it later moved to Virginia. The company grew fast by acquiring other companies such as MCI Communications in 1998 and UUNET technology in 1996. Other companies acquired included, Metromedia in 1992, esurgens Communications Group in 1993. In the course of this acquisition spree, WorldCom undertook two complex takeovers. The first was the 1998 acquisition of CompuServe from H& Block where it retained the network division, sold off the online service to American Online (AOL) and the second, the acquisition of Digex in 2001, and disposed of all Digex assets to Allegiance Telecom (Kaplan & Kiron, 2004). With these acquisitions, it gained a favorable reputation in the market as a company with a solid foundation.
Facts of the WorldCom Case
The WorldCom fraud case is one of the…
Kaplan, R.S., & Kiron, D. (2004). Accounting Fraud at WorldCom. HBS Premier Case Collection .
Reuters. (2003, April 14). WorldCom to emerge from collapse. Retrieved from www.cnn.com: http://edition.cnn.com/2003/Business/04/14/worldcom/
Ryerson, F. (2009). Improper Capitalization and The Management of Earnings. Las Vegas: Macon State College.
The Securities and Exchange Commission, 02 Civ. 3288 (United States District Court For the Southern District of New York June 26, 2002).
Strategic Perspectives in Management Accounting and Finance
The main reason for differentiation in the accounting studies seemed to occur due to the functionalist perceptions in the expertise of social studies. According to Dellaportas and Davenport (2008) professions are being separated by occupation on the basis of the level of distinctiveness one occupation has from another; a model first designed by Greenwood in 1975.
Abercrombie et al. (1994, p. 335) in their study explained that such distinctiveness is surrounded by the concept which results in more beneficiary outcomes for the public than for an individual's professional interest in providing services. This simply means that it was an original human demand that gave birth to all professions. There's an equality on profession's social compulsion i.e. there is a balance between a professional's job and his obligation to serve the public. In this regard Carey (1965, p. 376) asserted that it was in…
Abbott, A. The system of professions: an essay on the division of expert labor. Chicago: University of Chicago Press (1988).
Abercrombie, N., Hill, S., Turner, B.S. The penguin dictionary of sociology. 3rd ed. Ringwood: Penguin Books (1994).
Bedard, J. The disciplinary process of the accounting profession: protecting the public or the profession? The Quebec experience. Journal of Accounting and Public Policy; 20 (2001) (4/5): 399 -- 437.
Bivins, T.H. Public relations, professionalism, and the public interest. Journal of Business Ethics; 12 (1993) (2): 117 -- 26.
For example, mergers and acquisitions are perceived as the latest fashionable trend to grow the company market share and profitability due to synergies affect. But as the practise has shown, out of the latest mergers, about 75% did not perform as they were expected by the top management.
The Sarbanes-Oxley Act was aimed to facilitate and solve some of these very difficult problems in the accounting and management of the companies. The companies now are restricted to the amount of intangible assets they can show in their balance sheets, which reduces the moral opportunism problems in the company. The company has also currently to hire the auditors which are completely independent from the management of the company and cannot carry out any other than audit services for the company. This solves the problems of insider trading, where the management take advantage of their internal knowledge of the real company situation.…
Available from www.wikipedia.org
Brealey, R., Myers, SC. Fundamentals of Corporate Finance, 4th Ed., McGraw & Hill, 2004.
Abrams, J. Quantitative Business Valuation: A Mathematical Approach for Today's Professionals, McGraw-Hill, 2000.
Available from: www.wikipedia.org
Accounting Profession: New Scrutiny and esponsibilities
While many people treat the accounting profession as something which lacks glamour and prestige, ordinary civilians often don't realize how crucial the accounting profession is to the world at large. The accounting departments in major firms are often what provides a foundation for most companies to be able to do what they do and accomplish tasks as needed. Accountants are the ones who are able to keep track of all the finances that are going out vs. what is coming in. Given the "new normal" in the world of corporate finance in light of the more recent corporate scandals, the work that accountants do have a greater level of importance. Accountants are now under greater scrutiny and have greater levels of responsibility: the accounting departments in major firms are now seen as ethical watch-dogs.
The skills and knowledge required in being an accountant are…
Balassone, J. (2014). Ethical Meltdown: Red Flags for Directors. Retrieved from scu.edu:
Einhorn, W.M. (2003). Ethical Accounting Practices and the Pressures on CPAs.
Retrieved from nysscpa.com:
accounting industry has been facing increasing amounts of scrutiny. This is because a number of high profile scandals (i.e. Enron and World Com) were brought to attention of regulators (based upon the need for increasing oversight in this area). As a result, the Sarbanes-Oxley Act of 2002 was implemented. However, since this law was first enforced, a number of firms are claiming that its restrictions are an added burden (for large multinational corporations). This is creating situations where individuals could still engage in unethical practices. To fully understand what is happening requires looking at potential conflicts. Once this takes place, is when it will highlight the impact of these activities on firms.
The Effect of Sarbanes-Oxley on Financial Statements
The effect of Sarbanes-Oxley on financial statements is that it is forcing firms to provided added disclosures to investors. This occurs with the CEO and CFO certifying under oath that the…
Sarbanes-Oxley Act 2002. (2006). SOX Law. Retrieved from: http://www.soxlaw.com/
Frankel, A. (2012). Wal Mar's Sarbanes-Oxley Problem. Reuters. Retrieved from: http://www.reuters.com/article/2012/04/23/us-frankel-walmart-idUSBRE83M1GQ20120423
hy I Chose Accounting
"I hate math." Ever since I can remember people have approached me to tell me how much they loathe math, when they hear that I love it. However, I have always been fascinated by the order mathematics can bring to a chaotic world. Sometimes when life seems hard, it is very comforting to be able to look at numbers. This is not to say, of course, that accounting is not challenging. In fact, like many prospective accounting majors, I initially struggled with the discipline in my fundamentals courses ("Top 10 Easiest and Hardest College Degree Majors of 2016"). There is a reason that introductory accounting classes are often considered weeding-out, gatekeeping classes for the profession. Many people decide they want to be accountants because they think it is a lucrative profession that does not require as much additional schooling as law or medicine but then…
Erstad, Will. "Is an accounting degree worth it or worthless?" Rasmussen. 16 Nov 2015.
Web. 8 Jul 2016.
Grohol, John. "10 Highly Effective Study Habits." Psych Central. Web. 8 Jul 2016.
"How to become a CPA." CPA Review. Web. 8 Jul 2016.
Arthur Anderson: Questionable Accounting Parctices
Arthur Anderson: Questionable Accounting Practices
Arthur Andersen LLP was founded in 1913, and for over 90 years, the company would have become one of the "Big Five" largest accounting and auditing firms in the United States with the same standard comparable to PricewaterhouseCoopers, Deloitte & Touche, KPMG and Ernst & Young. In the 80s, Arthur Anderson name was synonymous with integrity, trust, and ethics. Such values are critical to the success of firms charged with auditing and firms confirming a company's financial statement, whose accuracy of a company's financial statements generally influence investor's investment decision. (Ferrell, Linda, 2012).
In the 1990s, Arthur Anderson became one of the fastest growing accounting and auditing firms in the United States with huge financial success during the period. However, starting from 2001, the company faced several lawsuits for accounting irregularities. In May 2001, "the company paid $110 million to…
Ferrell, O.C. Linda, J.F. (2012). Business Ethics: Ethical Decision Making and Cases: 2009 Update. Cengage Learning
Fraedrich, J. Ferrell, O.C. Ferrell, L.(2011). Ethical Decision Making for Business. Cengage Learning.
McGlynn, M (2010). Arthur Andersen Case Studies in Business Ethics. Carnegie Mellon Temper School of Business.
This quotation shows how arbitrary MTM can be. Simply by terming Enron's cash shortage a sa minority interest as opposed to the proper term for it, debt, Enron was able to manipulate MTM to prevent such a sizeable loss from appearing on its balance sheet. Moreover, MTM's role in this transaction allowed Enron to repair its problem of a cash flow shortage since it credited $500 million via its sale of Treasury securities. The relative short duration in which Enron was able to take out a loan and repay it indicates how effective MTM was in providing Enron a favorable balance sheet, and in singled-handedly dancing around the reality of its shortages. Additionally, it also kept others (shareholders, stakeholders, not to mention its hard working employees) to know how tenuous an economic position the company was actually in.
In discussing Enron's MTM approach to accounting and the considerable role…
Batson, N. (2003). "Second interim report of Neal Batson, court appointed examiner." Enron Corp et al., v. Debtors.
Monks, R.G., Minnow, N. (2008). Corporate Governance. New Jersey: Blackwell Publishers. Retrieved from http://www.ragm.com/enron/accounting.html
Valdmanis, T. (2008). "Senate report blasts SEC's Enron oversight." USA Today. Retrieved from http://usatoday30.usatoday.com/money/industries/banking/2002-10-06-sec_x.htm
disclosure principle in accounting is the standard adopted by the accounting profession, which "calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader" (Kieso, Weygandt, & Warfield, 2007). Obviously, this definition is a very subjective one, because the reporting entity makes the determination of what facts are significant enough to influence an informed reader. "To reduce the amount of disclosure, it is customary to only disclose information about events that are likely to have a material impact on the entity's financial position or financial results" (Accounting Tools, 2011). However, the principle is not meant to be narrowly interpreted, and may require a company to report things that cannot be reduced to numbers on a balance sheet. For example, "this disclosure may include items that cannot yet be precisely quantified, such as the presence of a dispute with a government entity over a…
Accounting Principles. (2011). The full disclosure principle. Retrieved from http://www.accountingtools.com/full-disclosure-principle
Kieso, D.E., Weygandt, J.J., & Warfield, T.D. (2007). Intermediate accounting (12th ed.).
Hoboken, NJ: John Wiley & Sons.
Ethically, the actions of Enron management were reprehensible. From a deontological perspective, they broke laws. From a consequentialist perspective, their actions resulted in significant financial losses for millions of people, job losses for thousands and a loss of public faith in the financial system.
The Enron scandal is perhaps the most egregious misuse of data in recent years. Data was manipulated and/or hidden from those whose job was to analyze the data. ide-ranging and catastrophic losses resulted from this misuse. Had the data been presented factually and honestly, the analysis that flowed from it would have benefited Enron's internal and external stakeholders. The company may have suffered in the short-term but would have been able to survive in the long-term.
Thomas, Cathy Booth. (2002). Called to Account. Time Magazine. Retrieved March 27, 2009 from http://www.time.com/time/business/article/0,8599,263006,00.html
Houston Chronicle: The Fall of Enron. (2001-2009). Houston Chronicle. Retrieved March 27, 2009…
Thomas, Cathy Booth. (2002). Called to Account. Time Magazine. Retrieved March 27, 2009 from http://www.time.com/time/business/article/0,8599,263006,00.html
Houston Chronicle: The Fall of Enron. (2001-2009). Houston Chronicle. Retrieved March 27, 2009 from http://www.chron.com/news/specials/enron/
Wee, Heesun. (2001). Enron in Perfect Hindsight. Business Week. Retrieved March 27, 2009 from http://www.businessweek.com/bwdaily/dnflash/dec2001/nf20011219_8118.htm
Ethics and Accounting - Financial Decision-Making
Ethics in Accounting and Financial Decision Making
The article Ethical guidance and constraints under the Sarbanes-Oxley Act of 2002 by .M. Orin (2008), espouses the belief that the Sarbanes-Oxley Act did not go far enough in its desire to stop unethical financial practices by businesses. The article addresses what the Act actually does, which is to help companies practice more due diligence and lessen the chances of getting involved in unethical financial practices. The Sarbanes-Oxley Act involves important legal issues. The due diligence is one of those issues, but another is the need for accountants and lawyers to report the corporations they work with for wrongdoing if they see or suspect a serious financial issue (Coffee, 2002). This has been a concern for some because it technically compromises the attorney-client privilege. This was necessary, though, in the face of all of the corporate scandals…
Coffee, J.C. Jr. (2002, September). Leading issues under Sarbanes-Oxley, Part 1, New York Law Journal: 5.
Koehn, J.L. & Del Vecchio, S.C. (2004, February). Ripple effects of the Sarbanes-Oxley Act. The CPA Journal: 36-40.
Orin, R.M. (2008). Ethical guidance and constraints under the Sarbanes-Oxley Act of 2002. Journal of Accounting Auditing and Finance: 141-171.
Information System holds in Accounting Industry's future?
Looking through the glass and estimating what the future holds for any individual or profession is always a difficult exercise as the trends in any business or profession may change and so the path of development. It is better to look at the experience of some companies whose systems have changed over the past few years and thus try to estimate what is likely to happen.
There are many changes that have come to the world through the development of Information Technology and Computers. All the changes have come over a relatively short period of twenty years, and in many cases both industry and concerned humans are yet to adjust to the changes. There are many changes which have come in the accounting industry also, and those changes give an idea of what is likely to happen in the future.
The organization where…
Anders, Susan B. (February, 2005) "Website of the Month: Legalbitstream" The CPA Journal.
Retrieved from http://www.nysscpa.org/cpajournal/2005/205/essentials/p70.htm Accessed on 12 July, 2005
Anders, Susan B. (July, 2005) "Website of the Month: Kaplan CPA Review" The CPA Journal.
Retrieved from http://www.nysscpa.org/cpajournal/2005/705/essentials/p70.htm Accessed on 12 July, 2005
Managerial Accounting: Organizations and Expectations
The profession and practice of accounting has become increasingly prominent and increasingly scrutinized over the past decade or so, in the wake of major scandals and upsets in the business world that can be traced in part to nebulous and unethical accounting practices or outright frauds. Because of this increased prominence, accountants today need to be more concerned than ever with not only the standards to which they hold themselves and their work, but also the appearance of these high standards and performance capabilities. This is one of the major benefits, along with many others, of belonging to a professional organization. The authority and austerity that the right professional organization carries provides these abstract as well as concrete benefits to member accountants, from increasing confidence and camaraderie to detailing the actual expectations and requirements of the task of accounting.
The Institute of Management Accountants is…
IMA. (2012). Institute of Management Accountants. Accessed 10 January 2011.
transparency seems to be a huge concern for the accounting profession and that many specialists (e.g. professionals and organizations in the accountancy profession such as Tilley (2010)) see transparency as remaining the next huge issue in the next decade, particularly as businesses outsource, become more complex, and powerful.
Regulations that are in order include the arbanes-Oxley Act (2002) that came into effect due to major accounting and corporate scandals that occurred in the last century such as from WorldCom, Tyco, Peregrine ystems; Adelphia, and Enron, each of which effected share prices of numerous impacted companies and caused the public's trust in security markets to falter (Greer. & Tonge, 2006).
Importance of the OX consists in the fact that it has restored public security in American capital markets and corporate financial statements as well as making corporate accounting more accountable for its actions and strengthening its responsibility. The OX has led…
Fombrun, C. & Foss, C. 2004, 'Business ethics corporate response'. Corporate Reputation Review, 7, pp.284 -- 288
Greer, L. & Tonge, A. 2006, 'Ethical foundations: a new framework for reliable financial reporting' Business Ethics: A European Review, 15(3), pp. 259-270, Wiley Online Library [Online].
Roslender, R. & Stevenson, J. 2009 'Accounting for people: a real step forward or more a case of wishing and hoping?' Critical Perspectives on Accounting, 20 (7), pp.855-869, ScienceDirect [Online].
Tilley, C. 2010 'Beyond 2010: Accountants in the next decade.'
In theory, of course, this means that values would end up fluctuating more in response to market fluctuations, which would lead to further market fluctuations and thus more value changes, etc., etc. etc. In reality it is doubtful that this state of affairs would lest into perpetuity, as eventually investors would become used to the new schema and reactions would grow more measured. And even the initial volatility that has been observed might not indicate a problem.
Moyer (2008) claims that in discounting existing capital and management, fair value accounting practices replace objectivity in financial analysis with fear. What this claim in essence boils down to us that fair value accounting practices demand values to be assessed solely on the current state of affairs rather than on potentials. Clearly, management and capital are only as valuable as what they are able to produce; an assessment of value based on their…
AICPA. (2009). "FAQs about fair value accounting." The American institute of certified public accountants. Accessed 2 October 2009. http://www.aicpa.org/MediaCenter/fva_faq.htm
Moyer, L. (2008). "How fair is fair value accounting?" Forbes. Accessed online 2 October 2009. http://www.forbes.com/2008/06/24/accounting-banking-sec-biz-cx_lm_0625sec.html
Ethics and Independence in the Accounting Profession
There are according to the text, two primary reasons that people act unethically. A person will act unethically if there standards differ substantially from those of society "as a whole" or if the person chooses consciously to act in a selfish manner.
There is no profession more profoundly impacted by the effects of ethical standards that the accounting profession. The effects of ethical and unethical behavior on independence and daily functioning are implicit in everything an individual in the accounting profession does.
ecently there have been many public 'scandals' within the accounting profession, re-establishing the need for attention to ethical standards and training within the field of accounting. Public cases such as Enron have resulted in a diminished sense of trust among the public with regard to the accounting profession.
In times of old individuals pursuing the accounting profession as a career might…
Dettmer, J. (2002). "Enron casts dark shadow on academe." Insight on the News, 18(9):
Rothenburg, E. (2003). "Incorporating business ethics into introductory accounting courses." The CPA Journal, 73(10): 6
Sack, R. (1991). "Integrating ethics into the accounting curriculum." Journal of Accountancy, 172(4): 43
Particulars of Enron's Bankruptcy
There were a number of specific actions that led to Enron's bankruptcy. The majority of these pertain to a lack of accountability on the part of numerous people in key positions at this firm. The individual accountants at Arthur Andersen, the now defunct accounting firm that worked for this company, allowed Enron to utilize dubious accounting practices without trying to curtail them. Upper level management was guilty of allowing such accounting practices to take place, and of being too concerned with acquisition and spending to ensure the company was operating in accordance with the standards provided by the Securities Exchange Commission. Several fraudulent activities also contributed to Enron's bankruptcy. These include the insider trading that took place, the misrepresentation of the company as financially viable when it was on the verge of bankruptcy, and many others.
One of the primary accounting and auditing practices that eventually…
Cross, J.N., Krunkel, R.A. (n.d.). Andersen implosion over Enron: an analysis of the contagion effect on Fortune 500 firms. University of Wisconsin.
Emshwiller, J.R. (2001). Enron transaction with entity run by executive raises questions. The Wall Street Journal. Retrieved from http://faculty.msb.edu/bodurthj/teaching/ENRON/Enron%20Transaction%20With%20Entity%20Run%20by%20Executive%20Raises%20Questions.htm
Values and Morals in the Accounting Industry
The important questions to be addressed are taken from the "…business ethics/corporate social responsibility literature, oriented towards business enterprises but also of relevance to professional bodies: whether being ethical 'pays' in financial terms; and whether formal codes are useful in promoting ethical behavior…" (Cowton, 2009, p. 177).
Accountants are charged with carrying out ethical and moral decisions in their everyday work, but judging from some of the scandals in recent years (Enron, orldCom, the Anderson Accountancy, etc.) not all accountants are up to speed with those ethical and moral decisions. This paper reviews the judgments that accountants should be making based on morality and ethical values, whether the accountant is working for a multinational corporation or for a small business with only half a dozen employees.
Accounting Students and Moral Decision-Making
Deborah Leitsch writes in the Journal of Business Ethics that auditors are…
Brown-Liburd, Helen L., and Porco, Barbara M. (2011). It's What's Outside that Counts:
Do Extracurricular Experiences Affect the Cognitive Moral Development of Undergraduate Accounting Students? Issues in Accounting Education, 26(2), 439-454.
Cooper, Barry J., Leung, Philomena, Dellaportas, Steven, Jackling, Beverley, and Wong,
Grace. (2008). Ethics Education for Accounting Students -- a Toolkit Approach.
Fannie Mae Scandal
Fannie Mae is the second largest government sponsored U.S. financial institution engaged in mortgage finance after Citigroup Inc. An investigation lasting for eight long months by the Office of Federal Housing Enterprise Oversight or OFHEO revealed massive manipulation of earnings that have been engineered to fulfill Wall Street expectations and smooth volatility in earnings from one quarter to next quarter. The revelations deserve quick corrective action announced by the Director of the Agency in a letter to the Board members of Fannie Mae. The Securities and Exchange Commission is also inspecting the books of accounts of Fannie Mae. However, a statement issued by Fannie Mae states that the company has modified its employment contracts with the three top ranking executives i.e. The Chairman and Chief Executive, Franklin aines, Chief Operating Officer Daniel Mudd and Chief Financial Officer, Timothy Howard to make sure that in the event their…
Buchanan, Ian. "Christian Ethics in Business -- Asset or Liability." Retrieved from http://www.christianity.ca/faith/christian-living/2003/06.001.html
Accessed on 14 June, 2005
"Commentary on ECFA Standard 1" Evangelical Council for Financial Accountability.
Retrieved from http://www.ecfa.org/ContentEngine.aspx?Page=Comment1
business scandals in the early 2000s brought the issue of business ethics to the fore -- Enron, WorldCom and Tyco. The three share some similarities but they are different in other ways. Enron was simply a case of criminal activity. The company's management did not publish financial statements and when they did the statements completely misrepresented the company's financial position. This occurred on the direction of the senior management team, with the complicity of the auditor, Arthur Andersen. These managers were heavily invested in Enron and therefore had a strong personal interest in creating phony financial statements in order to pump up the company's stock price. The corruption at Enron ran deep within the company, such that the scandal all but wiped the company out.
The situation at WorldCom was that CEO Bernie Ebbers was a heavy owner of the company's shares. As such, he benefitted from implementing an aggressive…
PBS. (2013). Accounting fraud is business as usual at the Pentagon. PBS News Hour. Retrieved December 4, 2013 from http://www.pbs.org/newshour/rundown/2013/11/accounting-fraud-is-business-as-usual-at-the-pentagon.html
In the business actuality of the present day, where knowledge management together with intangible assets are fundamental sources of competitive advantage, the individual action and behavior of employees ranging from first-line personnel to management can facilitate the success or downfall of an organization’s reputation. This has a substantial effect on share value, the capability to attract and sustain consumers, investors, personnel, or clients, and the risk of violating compliance (Jamshidinavid and Kamari, 2012). Addressing business ethics and responsibility issues within a business entity begins the compliance of the pertinent legislations and codes of practice. As a provider of business needs with scarce resources, there is the need to have the capability to make a distinction between the appropriate and inappropriate way of taking expense into account when making decisions regarding practices and processes of clients. In the contemporary business setting, the role that is played by accountants is significant.…
health south accounting irregularities: A Presentation and Overview
As a part of this presentation, I, as an independent auditor commissioned by the committee of the firm representing the HealthSouth Corporation, wish to make clear that the company I have just audited, though tarred and feathered by the modern media, is not nearly at fault as one might initially believe, given the nature of the following components peculiar to the health services and health care industry. Although HealthSouth's supposed irregularities may have been elided in the public imagination with corporations such as Enron, it is not an 'imaginary corporation.' Mistakes were made, but these mistakes should not cause individuals to forget the ongoing quality of care still provided by the company.
The company's former CEO Richard M. Scrushy never told the company's primary accountants to falsify financial reports. Furthermore, these accountants would have reported accounting irregularities had they known about them.…
Brubaker, Bill. "HealthSouth employees say patients unshaken by scandal." The Washington Post. July 8, 2003. April 16, 2003. Washington Post.com. Web page accessed on July 28, 2002 at nbc13.com
Executives say they were not aware of accounting problems." MSNBC.com. April 13, 2003. Web page accessed on July 28, 2002 at nbc13.com
Johnson, Carrie. "HealthSouth to resist bankrupsy." The Washington Post. July 8, 2003. Washington Post.com. Web page accessed on July 28, 2002 at nbc13.com
The United Kingdom is one of the largest markets in the world for Starbucks, with over 700 stores, by far the largest in Europe. The company ran into a scandal, however, when it was revealed that the company was not paying taxes in the UK, but was rather paying the taxes in the Netherlands and Switzerland, which has a much lower tax rate. Some politicians decided to make a name for themselves by attacking the foreign company (Starbucks' major competitors in the UK are local chains Costa and Caffe Nero, both domestic companies). The ensuing negative publicity hurt Starbucks' sales, which fell below ?400 million for the first time since 1998 (Campbell, 2014).
At issue is the fact that the UK signed into membership with the European Union. The EU established rules that allowed companies to headquarter in one European country and operate subsidiaries in another…
Bergin, T. (2012) How Starbucks avoids UK taxes. Reuters Retrieved December 18, 2014 from http://uk.reuters.com/article/2012/10/15/us-britain-starbucks-tax-idUKBRE89E0EX20121015
Burnett, J. (1999). A strategic approach to managing crisis Public Relations Review. Vol. 24 (4) 475-488.
Campbell, P. (2014). Sales slide as Starbucks feels tax backlash. The Daily Mail. Retrieved December 18, 2014 from http://www.dailymail.co.uk/news/article-2612668/Sales-slide-Starbucks-feels-tax-backlash-Coffee-chain-axes-six-shops-14m-drop-business-past-year.html
Campbell, P. (2014, 2) Anger as Starbucks boss says may not pay UK tax for up to three years. Daily Mail Retrieved December 18, 2014 from http://www.dailymail.co.uk/news/article-2856284/Starbucks-chief-reveals-coffee-giant-not-pay-normal-tax-THREE-YEARS.html
Sarbanes-Oxley Act of 2002 is will probably be known as one of the most significant change to federal securities laws in the United States since the New Deal. The act was passed after a series of corporate financial scandals made the national news, which included a slew of companies such as Enron, Arthur Andersen, and orldCom. The most notable provisions of the act include such items as both criminal and civil penalties for securities violations, a push for auditor independence from the corporation, requirements that guarantee certification of internal audit work by external auditors, and significant calls for increased disclosure regarding executive compensation, instances of insider trading as well expanding types of information that must appear on financial statements.
Even though the act may lessen the burden of the consequences of unethical acts that the public has to bear, all publicly traded companies now have to deal with the formidable…
Open Pro. (2011). OPENPRO AND SARBANES-OXLEY COMPLIANCE. Retrieved from Open Pro: http://openpro.com/products_features_sox.html
Pele-Sol. (2011). What is Business Process Automation. Retrieved from Pele-Sol Engineered: http://www.pele-sol.com/pele_factsheet_new.pdf
Solu Soft. (2009, January 13). Business Process Management. Retrieved from Solu Soft: http://solu-soft.com/CompliancewithSarbanes.pdf
ethics in the business and accounting communities has been a topic of broad discussion. From the collapse of Enron to the mishaps of Andersen the country has seen the most tumultuous ethical behavior in the history of our nation. The purpose of this discussion is to define ethics and the reasons why ethical behavior is important among accountants and business leaders. e will also explore ethical codes within the accounting and business communities. In addition we will provide examples of corporations that have performed both ethically and unethically. Finally we will focus on what changes need to be made to encourage ethical behavior.
Ethics is defined as the science of morality. (The Macmillan Encyclopedia) The Oxford Dictionary of Business defines ethical behavior as "Behavior judged to be good, just, right, and honorable, based on principles or guides from a specific ethical theory. However, ethical theories may vary from…
About the SEC. U.S. Securities and Exchange Commission. http://www.sec.gov/about/whatwedo.shtml
Code of Ethics. http://www.picpa.org/mem_indus/ethics/code/201.aspand http://www.picpa.org/mem_indus/ethics/code/203.asp
Creswel, Julie. "Will Martha Walk." Fortune Magazine. Published November 10, 2002
Dictionary of Business, Oxford University Press, © Market House Books Ltd. 1996
Cable provider Adelphia was one of the major accounting scandals of the early 2000s that led to the creation of the Sarbanes-Oxley Act. A key provision of the Act was to create a stronger ethical climate in the auditing profession, a consequence of the apparent role that auditors played in some of the scandals. SOX mandated that auditors cannot audit the same companies for which they provide consulting services, as this link was perceived to result in audit teams being pressured to perform lax audits in order to secure more consulting business from the clients. There were other provisions in SOX that increased the regulatory burden on the auditing profession in response to lax auditing practices in scandals like Adelphia (McConnell & Banks, 2003). This paper will address the Adelphia scandal as it relates to the auditors, and the deontological ethics of the situation.
Adelphia was once a…
McConnell, D. & Banks, G. (2003). How Sarbanes-Oxley will change the audit process. Journal of Accountancy. Retrieved April 15, 2013 from http://www.journalofaccountancy.com/issues/2003/sep/howsarbanesoxleywillchangetheauditprocess.htm
Barlaup, K., Dronen, I. & Stuart, I. (2009). Restoring trust in auditing: Ethical discernment and the Adelphia scandal. Managerial Auditing Journal. Vol. 24 (2) 183-203.
Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine. Retrieved April 15, 2013 from http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
The Sarbanes-Oxley Act (SOX) was passed in 2002 as a response to a wave of corporate accounting scandals. To measure the effectiveness of SOX over the past ten years, the objectives of the Act must be understood. The text of the Act states that its purpose is "to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes." The accounting scandals of the late 1990s and early 2000s had undermined public confidence in the U.S. securities system, because investors were beginning to feel that the information contained in the financial statements could not be trusted. Congress felt compelled to address this situation by passing Sarbanes-Oxley, which creates more legal controls over the financial statements, creates an enforcement body (the Public Company Accounting Oversight Board) and creates new safeguards.
Small (2011) examines the effectiveness of SOX in improving the…
Goelzer, D. (2004). The PCAOB and public companies. PCAOB. Retrieved November 20, 2012 from http://pcaobus.org/News/Speech/Pages/02252004_GoelzerPCAOBAndPublicCompanies.aspx
Hansen, C. (no date). Effective corporate governance: Sarbanes-Oxley in the courts. Carleton College Retrieved November 20, 2012 from http://people.carleton.edu/~amontero/Bridget%20Hansen.pdf
SEC.gov. (2002). Public Law 107-204 -- July 30, 2002
Small, R. (2011). How effective is internal control reporting under SOX 404? Harvard Law School Forum on Corporate Governance and Financial Regulation. Retrieved November 20, 2012 from http://blogs.law.harvard.edu/corpgov/2011/12/16/how-effective-is-internal-control-reporting-under-sox-404/
According to Frank Ahrens (2010, April 20) not only did Lehmann Brothers hide this practice from the investing public, rating agencies, and government regulators, they even deceived their own board of directors. "In this way Lehmann reversed engineered the firm's leverage ratio for public consumption."
In 2008 analysts frequently asked about the means by which the company was able to achieve reduction in risk. Lehmann Brothers' company official reported reducing its leverage through the sale of less liquid asset categories claimed and simultaneously claimed they were trying to give the group a great amount of transparency on the balance sheet. (Ahrens, 2010, April 10)
Lehmann Brothers executives are currently under criminal investigation. Subpoenas in grand jury probes were issued as early as October, 2008. Andrew Clark (2010, March 12) reports the problem is that it isn't easy to prove fraud in many of these cases. A top law or accounting…
Ahrens, F. (2010, April 20). Lehmann brothers, the evil repo 105s and the danger of off-balance-sheet deals. washingtonpost.com, Retrieved on May 13,2010, from C:UsersOwnerDesktop
epo 105Economy Watch - Lehman Brothers, the evil Repo
105s and the danger of off-balance-sheet deals.mht
Clark, a. (2010, March 12). Lehman Brothers: Repo 105 and other accounting tricks.
accounting discipline has taken a public relations beating over the past few years as a result of scandals in corporate accounting; much of this abuse has been well-deserved. Regulations regarding conflicts of interest, independent monitoring, reporting, and full disclosure to stockholders were thin at best, and in many cases were not enforced even when they did exist. The corporate accounting scandal wave changed that; public outcry for accountability resulted in Congress passing the Sarbanes-Oxley Act of 2002. This act contains many new regulations that have a profound effects on publicly traded companies, and that will directly affect this team and your corporation.
First, a quick summary of the actors involved: the FASB, or Financial Accounting Standards Board, and the Securities Exchange Commission, or SEC, have a mutually reciprocal relationship. The FASB issues standards regarding accounting standards which the SEC enforces; although the FASB is not an official government body (it…
Bush, who declared that corporations which jeopardized the investments and jobs of millions of individuals should pay their dues. The United States Senate and the House of epresentatives also became involved and proposed numerous modifications.
The pillar of the changes occurred in financial reporting after the accounting scandals is based on increased transparency and more support in conducting audit operations. The XBL system for instance will allow the Securities and Exchange Commission to conduct analyses in a more efficient manner. All efforts to improve the financial reporting system have been condensed into the Sarbanes-Oxley Act. It represents the most important regulatory act of the past 70 years and it is applicable all around the world; it addresses issues that refer to all players in the corporate reporting chain.
Bautista, L.., 2004, Implications and Effects of Sarbanes-Oxley Act, Securities and Exchange Commission, etrieved at http://www.adbi.org/conf-seminar-papers/2006/03/30/1739.implications.effects.sarbanesoxley/onMarch 13, 2009
Cooper, C., 2007,…
Bautista, L.R., 2004, Implications and Effects of Sarbanes-Oxley Act, Securities and Exchange Commission, Retrieved at http://www.adbi.org/conf-seminar-papers/2006/03/30/1739.implications.effects.sarbanesoxley/onMarch 13, 2009
Cooper, C., 2007, Extraordinary Circumstances: The Journey of a Corporate Whistleblower, John Wiley and Sons
Lee, H., Effects of Sarbanes-Oxley Act of 2002 and SEC Final Rulings on Auditor Independence, SUNY Institute of Technology, Retrieved at http://www.sba.muohio.edu/abas/2003/vancouver/lee_auditor%20independence.pdfonMarch 13, 2009
Malpass, a., June 2, 2002, hp_:I/help animals.net/news artic/91719, Quoted by Hannon
cross examine the accounting fraud scandal that took place at Xerox, the main intention of this analysis is to know the causes and the effects of the scandal as well as the need of a good practice in business ethics, corporate management and the general oversight. Xerox was able to utilize a creative technique of accounting to give false presentation of its assets and liabilities, they also deceive the investors and lastly they were able to inflate their socks. The main players of the scandal were the chairman, CEO and other high ranking officials who took the advantage and enriched themselves (Gara, D. 2004). The high ranked officials made away millions of shillings at the expense of the stakeholders. This scandal highlighted the need for accountability and ethics in the governance of finance as well as corporate.
The analysis also aims to examine the strategic mistakes that led the Xerox…
Coenen, T. (2008) Essentials of corporate fraud. John Wiley and Sons. Retrieved on May 25, 2014 www.slideshare.net/divinvarghese/xerox-corporation-fraud-case-982933
Pickett, K.H. Spencer. (2007)Corporate fraud a manager's journey. John Wiley and Sons. Retrieved on May 25, 2014 www.wsws.org/en/articles/2002/.../xero-j01.htm
Gara, D. (2004) Corporate fraud case studies in detection and prevention. John Wiley and Sons. Retrieved on May 25, 2014 www.money.cnn.com/2002/04/11/technology/xerox_fraud
Comer, M. (2003) Investigating corporate fraud. Gower Publishing, Ltd. Retrieved on May 25, 2014 www.i-sight.com/.../xeroxs-accounting-scandal-recovery-tactics
The statute of limitation for the discovery of fraud is increased to two years from discovery date and five years following the act. Criminal penalties for securities fraud was increased to 25 years, by SOX.
Each public company's CEO and CFO must certify financial statements and reports. Personal loans are banned, to executive officers and company directors, with the enactment of SOX. It is also now required to accelerate reporting of insider trading ("H.. 3763").
In addition, SOX now prohibits insider trading during pension fund blackouts. Compensation and profits for the CEO and CFO must be made public.
Auditor independence is now specifically required. and, American companies must have an internal audit function, that is certified by external auditors. Audit firms are prohibited from providing services, unrelated to their audit work, to clients. One of the most important provisions is an increased accountability, holding CEOs and directors accountable, for crimes…
Beard, D. & Wen, H. "Reducing the Threat Levels for Accounting Information Systems." The CPA Journal. May 2007. New York State Society of CPAs. December 3, 2007 http://www.nysscpa.org/cpajournal/2007/507/essentials/p34.htm .
Collins, J. "15 Key Provisions of Sarbanes-Oxley." Microsoft Dynamics. 10 Nov 2004. Microsoft. December 3, 2007 http://www.microsoft.com/dynamics/nav/product/navision_15_major_sox_provisions.mspx.
H.R. 3763. 23 Jan 2002. Government Printing Office. December 3, 2007 http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=107_cong_bills&docid=f:h3763enr.tst.pdf .
Lucci, J. "Enron - the Bankruptcy Heard Around the World and the International Riccochet of Sarbanes-Oxley." Albany Law Review 67(1) 2003: pp. 211-249. Academic Search Premier. EBSCOHost. University of Phoenix, Phoenix, AZ. December 2, 2007 http://web.ebscohost.com .
The FASB and the IASB
As a series of recent and ongoing events have made abundantly clear, there is a great need for consistency and oversight in the accounting practices of large business, and for overall standardization that will lead to increased transparency in the financial sector and the accounting industry as a whole. From the Enron scandal that occurred a decade ago to the far more recent and more potent mortgage-backed security schemes that were in large part responsible for the global recession, accounting "irregularities" and practices that are questionable both ethically and legally have led to major problems for many investors and consumers, often while racking up major profits for certain individuals that hold the real information while publishing their "creative" reports. It is for this reason that various boards developing and governing standardized accounting practices have been established, and though the degree of their influence…
IASB. (2011). Accessed 8 January 2011. http://archive.iasb.org.uk/about/history.asp
IFRS. (2011). Accessed 8 January 2011. http://www.ifrs.org/Home.htm
FASB. (2011). Accessed 8 January 2011. http://www.fasb.org/home
McKay, M. (2009). FASB v IASB? Accessed 8 January 2011.
ACC403 Module 4 Threaded Discussion Managerial Accounting 21st Century The purpose management accounting organization support competitive decision making collecting, processing, communicating information helps management plan, control, evaluate business processes company strategy.
The importance of management accounting within an organization:
Changes and evolution of the managerial accountant's role
The distinctive feature of managerial accountancy is that members of the profession work for one specific company on a consistent basis, versus being employed by a variety of clients. "The role of the management accountant is to perform a series of tasks to ensure their company's financial security, handling essentially all financial matters and thus helping to drive the business's overall management and strategy" (ole of the managerial accountant, 2012, Business Careers). Depending on the seniority of the accountant, these duties may include budgeting, tax advice and policy, managing assets within benefits packages and other forms of strategic planning (ole of…
Accounting. (2012).Wet Feet. Retrieved:
Cooper, Phillip & Dart, Eleanor. (2009). Changes in the managerial accountant's role: Drivers and diversity. The University of Bath School of Business. Working Paper. Retrieved:
Zhang was employed as a qualified accountant in a small accounting practice. Following an investigation, the disciplinary committee of the professional body to which Sam belonged found that he provided misleading sets of financial statements at the request of clients on several occasions, in return for substantial payments. This was done without the knowledge of his employer.
Trust is an important part of the accounting profession. Accountants have an ethical obligation to present financial statements that are accurate and true to the best of their ability. Many people depend on accounting statements to make financial decisions. Accounting statements are used to make business forecasts and for strategic planning. They are used by investors to decide if the company is a good risk or a bad risk. Many people depend on the statements of accountants and they must trust that the information that they receive is as accurate as possible.
Accounting Professional and Ethical Standards Board (APESB). (2006) APES 110 Code of Ethics for Professional Accountants. June 2006. Retrieved October 17, 2010 from http://www.ceo.wa.edu.au/home/carey.peter/Accounting_and_Finance/APES_110.pdf
Allen, C. (2010). Comparing the Ethics Codes: AICPA and IFAC. Journal of Accountancy. October 2010. Retrieved October 17, 2010 from http://www.journalofaccountancy.com/Issues/2010/Oct/20103002
Bolt-Lee, C. & Moody, J. (2010). Highlights of Finance and Accounting Ethics Research. Journal of Accountancy. October 2010. Retrieved October 17, 2010 from http://www.journalofaccountancy.com/Issues/2010/Oct/20102896
CPA Australia. (2010). Frequently asked questions about financial reporting. Retrieved October 15, 2010 from http://www.cpaaustralia.com.au/cps/rde/xchg/cpa-site/hs.xsl/knowledge-auditing-toolkit-faqs-financial-reporting.html
Ethics and egulatory Issues
elated party transactions reported on by Arthur Andersen & Co.
Flaw in the accounting firm's logic
Checklist for special projects performed by external auditors
Proposed rules or laws to prevent similar occurrences
Enron was one of the Wall Street's favorite blue chip stocks before an accounting scandal of the firm surfaced in 2000. The revelation that company has been misreporting its profits and losses during 1990s crashed the company's stock. The earnings and debt statements were not representative of the actual accounting transactions. Thus, a serious issue of bankruptcy ensued after this revelation. There were several ethical aspects of this issue as well. Following the details of accounting malpractices that the company through its accounting firm Arthur Andersen (Benston, 2003).
elated party transactions reported on by Arthur Andersen & Co.
Chewco Investments, L.P. ("Chewco"): Chewco was also a related party of Enron and it was…
Benston, G.J. (2003). Following the money: The Enron failure and the state of corporate disclosure. Brookings Inst Press.
Carcello, J.V., & Nagy, A.L. (2004). Client size, auditor specialization and fraudulent financial reporting. Managerial Auditing Journal, 19(5), 651-668.
International Federation of Accountants. (2009). Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing. International Standard on Auditing 200. New York, NY: IFAC.
Powers, W.C., Troubh, R.S., & Winokur, H.S. (2002). Report of investigation by the special investigative committee of the board of directors of Enron Corp.
" The code also states when communicating investment information care must be taken to ensure that it is fair, accurate and complete as well as make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer.
Evidence indicates Lehman's senior financial executives knew of the Repo 105 transactions and certified the accuracy of Lehman's financial statements and disclosures despite having full knowledge that the company had engaged in the use of these transactions to hide their toxic assets and make their financial statements appear to be in good health when, in reality, they were not. These executives were fully aware that the financial statements were misleading and did not fairly present the true position of the company.
Hiding toxic assets and releasing favorable financial statements to investors each quarter clearly…
Ahrens, Frank. "Lehmann Brothers, the Evil Repo 105s and the Danger of Off-
Balance-Sheet Deals." Washingtonpost.com, 20 April 2010. Web. 18 March 2013.
"Code of Ethics and Professional Standards" CFA Institute, Vol. 2010, No. 14, June 2010. Web. 18 March 2013.
Jeffers, Agatha E. "Lehman Brother -- the Thin Line between Aggressive Accounting and Unethical Behavior." European Journal of Management, Vol. 11, Issue 4, Winter 2011. Web. 18 March 2013.
Using these different techniques reveals different information about the company. So for example we know that Tesco earned £67.6 billion in revenue last year, and that this is an increase of 8.1% over the previous year. This is the top line number; we can see that the bottom line number is £3.8 billion, an increase of 11.7% from the year before. This basic analysis reveals that the company has increased its revenues faster than it costs. This is valuable information for all types of stakeholders. Investors find such facts reassuring. Unionized workers may see an opportunity to take their share of the increased profits, and customers may be upset that the company is earning higher margins from them, although it is hard to see where margins might come from on a 19p can of tomatoes.
The balance sheet is used to understand Tesco's financial condition. The assets, liabilities and equity…
Grant Thornton. (2011). The future of UK GAAP. Grant Thornton. Retrieved November 22, 2011 from http://www.grant-thornton.co.uk/services_/audit_and_assurance_x/the_future_of_uk_gaap-1.aspx
Investopedia. (2011). Efficient market hypothesis. Investopedia. Retrieved November 22, 2011 from http://www.investopedia.com/terms/e/efficientmarkethypothesis.asp
SEC. (2007). Beginner's guide to financial statements. Securities and Exchange Commission. Retrieved November 22, 2011 from http://www.sec.gov/investor/pubs/begfinstmtguide.htm
Tesco 2011 Annual Report. Retrieved November 22, 2011 from http://ar2011.tescoplc.com/