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The expectations gap occurs because many investors and policy makers expect auditors to detect all fraud, and if they do not, the auditors are presumed to be at fault." (Apostolou and Crumbley, 2008)
The specific requirements of auditors are included in SAS 99 AU 31 and IAS 240 and in summary includes the following requirements: (1) Considering a company's internal controls and procedures, and how these are actually implemented, when planning the audit; (2) Designing and conducting audit procedures to respond to the risk that management could override internal controls and procedures; (3) Identifying specific risks where fraud may occur; (4) Considering whether any misstatement uncovered during the audit may be indicative of fraud; (5) Obtaining fraud-related written representations from management; and (6 Communicating with appropriate managers and the board if the auditor finds an indication that fraud may have occurred. (Apostolou and Crumbley, 2008)
VI. FRAUD TRIANGLE
Ramos, Michael (2003) Auditor's Responsibility for Fraud Detection. Journal of Accountancy; Jan 2003; 195, 1; ABI/INFORM Global. Adapted from'Fraud Detection in a GAAS Audit' SAS No. 99 Implementation Guide. Online available at: http://users.ipfw.edu/pollockk/SAS99Article.pdf
Ethics Decision Tree: For CPAs in Government (2008) American Institute of CPAs, Inc., 2008. Online available at: http://www.aicpa.org/download/ethics/EthicsGover294cv.pdf
Apostolou, Nicholas and Crumbley, D. Larry (2008) Auditor's Responsibilities with Respect to Fraud: A Possible Shift? The CPA Journal. 2008 February. Online available at: http://www.nysscpa.org/cpajournal/2008/208/essentials/p32.htm
Farrell, Barbara R. And Joseph R. Franco. 1999. "The Role of the Auditor in the Prevention and Detection of Business Fraud: SAS No. 82." Western Criminology Review 2/1. [Online]. Available: http://wcr.sonoma.edu/v2n1/v2n1.html.
In recent times, there have been accounting scandals that have stunned the finance and accounting realm, and thereby reemphasized the significance of maintaining proper accounting practices. The recent accounting scandal of Olympus Corporation, a Japanese manufacturing company for cameras and endoscopes is selected for this study. The company's scandal encompassed a 13-year period of accounting irregularities totaling almost $1.7 billion (Infinit Accounting, 2014).
Audit Report Issued by CPA Firm
When Michael C. Woodford was appointed as president and Chief Executive Officer (CEO) of Olympus Corporation, he endeavored to make certain that the financial statements of the company were accurate and reliable. It is at this time that he discovered doubtful transactions in the statements of financial position of the company, with respect to the expenses reported. He instantly started inquisitions regarding these transactions, particularly about the inflated M&A advisory payments. Woodford was sacked by Olympus two weeks later upon deliberating…
Independence of Auditors
The objective of this study is to consider the statement as follows: "Unquestionably, the HIH story is also one of auditor failure" and to research into the background of the HIH collapse in Australia insofar as it relates to the role of auditors and their liability. A report will be prepared with summaries of the most important documents concerning this issue of auditor independence after the HIH collapse, the regulatory/legislative response and the review of the legislative response.
Ray Williams founded HIH in 1968. A ritish company, CE Health PLC acquired HIH in 1971. Prior to the collapse, HIH was the second largest Australian insurance company covering several segments of insurance. HIH had expanded globally into both the UK and U.S. markets. On the 15th day of March 2001 HIH entered into provisional liquidation with the liquidator estimating that HIH's total loss equaled approximately $A5.3 billion resulting…
Allen, Gregory (2006) The HIH Collapse: A Costly Catalyst for Reform. Hein Online. Citation 11 Deakin L. Rev. 137-2006.
Australian Auditor Independence Requirements: A Comparative Review (2006) The Treasury. Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004. No. 103.
Chapple, LJ and Koh, B. (2007) Regulatory Responses to Auditor Independence Dilemmas -- Who Takes the Stronger Line? Australian Journal of Corporate Law 21(1).
Corporate Disclosure: Strengthening the Financial Reporting Framework (2002) Commonwealth of Australia.
The value of audit is therefore noted to be derived wholly from its independence. Without the concept of independence, the auditors are noted to lack both credibility and opinion. The nature of relationship that exists between a client and an auditor is by itself a threat to the concept of independence. Incidents of influencing the auditor reports on the financial position of clients have been noted to result due to conflict of interest. The possibilities of a conflict of interest existing between clients and firms are noted to exist. Various connections such as audit firms being associated with other firms, personal as well as family relationships, client's financial interests, employment with the audit firms as well as the provision of various non-audit services to the audit clients are noted to affect the independence of auditors. Strength in character is therefore necessary in order to enable the auditors to have independence…
Mautz, R.K., and H.A. Sharaf. (1961). The Philosophy of Auditing. American AccountingAssociation Monograph No. 6. Sarasota. FL: American Accounting Association
Louwers, T.J., Ramsay, R.J., Sinason, DH, Strawser, J.R., & Thibodeau, J.C. (2011).
Auditing and Assurance Services (4th ed.). New York, NY: McGraw-Hill Irwin."
During a routine investigation, one the actuaries discovers that there are some possible red flags for illegal activity. When they report these issues to their supervisors, they are told to not worry about that. What make this so troubling is auditors have an ethical duty, to protect the interests of their clients and the public. The problem is that they want to remain a part of the team. Yet, they also must ensure that they are not directly helping to enable fraudulent activities to occur. (Moyer, 2009, pg. 83)
In this particular case, the auditor is not completely independent from their clients. The best way to deal with these kinds of situations is, to bring these red flags to the attention of upper management inside the accounting firm. If there is no satisfactory response, the individual has an obligation to let regulators and the general public know about what is…
Keuppers, R. (2010). How and Why Independent Audits Matter. International Journal of Disclosure and Governance, 7, 286 -- 293.
Knapp, M. (2012). Contemporary Auditing. Mason, OH: South-Western.
Markham, J. (2005). Financial History of Modern Corporate Scandals. Armonk, NY: Sharpe
Moyer, C. (2009). Contemporary Financial Management. Mason, OH: South-Western
Any threats to independence of the client can be determined on whether threats are created by past services from the client or business relationships before the audit engagement.
Importance of Independence of Auditor and Client:
During financial statement engagements, the independence of auditors and clients is important because of the following reasons & #8230;
The closer the relationship between an auditor and his/her client is the higher the probability and perception of inappropriateness. Through an examination of various studies and the wider implications of such relationship, the independence between auditor and client is the most effective way of lessening inappropriateness. This is primarily because such independence promotes and sustains integrity during the financial statement audit engagements.
Promotion of eliability:
The main goal of independence between auditor and client during audit engagements is to promote reliability through providing an independent and objective view of the financial statements. The independence…
Greene, H.E. Accounting News: Auditor Independence. Retrieved from Federal Deposit
Insurance Corporation website: http://www.fdic.gov/regulations/examinations/supervisory/insights/siwin06/accounting_news.html
Lindberg, D.L. & Beck, F.D. (2002, November). CPAs' Perceptions of Auditor Independence:
An Analysis of Views Before and After the Collapse of Enron. Retrieved May 18, 2012, from http://aaahq.org/audit/midyear/03midyear/papers/AuditorIndep-paper1-AuditingSection.isu.pdf
Management v. Auditors Responsibility
Responsibilities of Management and Auditors & the Public Perception series of high-profile business melt-downs in 2001, led by the Enron scandal have put the roles and responsibilities of the corporate management and the auditors in sharp focus. The public outcry against the necessity of preventing such crises in future has led to stricter regulation and extensive debate about the responsibilities of the management and the auditors. In this paper I shall explain the management's role and responsibilities verses the auditors' and also discuss how the public's perception of the auditor's duties have differed over time from that of the profession's.
The Management's Responsibilities
The management is responsible for formulating policies in an organization for efficient utilization of resources, setting goals, and providing the necessary resources, leadership and direction for achieving the goals. The ultimate objective of the management in a for-profit organization is to maximize the…
Colson, Robert H. "CPA Journal Education Forum Anticipates Future." The CPA Journal. 72: 8. (2002): 20+.
Gibson, Kim M. And Arleen R. Thomas. "Management is responsible, too; practical advice to help corporations prevent detect and deter fraud." Journal of Accountancy. 195: 4. (2003): 53+.
Locatelli, Mary. "Good Internal Controls and Auditor Independence." The CPA Journal. 72: 10. (2002):12+.
Telberg, Rick. "Happy New Year! Yes, It Really Could Be." At Large Column. December 29, 2003 The AICPA Website. March 9, 2004 https://www.cpa2biz.com/News/Telberg/Happy+New.htm
This is because auditors have a high amount of expertise in analyzing financial statements, with particular focus on being able to determine when fraud has potentially taken place. The forensic accounting capabilities of auditors are then put to work, to ensure that fraud has not taken place. The participants in free markets benefit from this work because it reduces the risk associated with their investments. Over time, this reduced risk will encourage more money into the markets, as the markets are viewed as a safe place for capital.
Recent developments have resulted in the role of the auditor evolving. The Center for Audit Quality (n.d.) has noted that where auditors used to basically have a "pass-fail" orientation to financial statements, this is now the bare minimum and a higher standard of care is to be taken in auditing reports. Auditors have become involved in creating annual reports that meet the…
Center for Audit Quality (no date). Observations on the evolving role of the auditor. Center for Audit Quality. Retrieved June 30, 2012 from http://www.thecaq.org/publications/EvolvingRoleoftheAuditor.pdf
Johnson, S. (2010). What is the auditor's role in finding fraud? CFO Magazine. Retrieved June 30, 2012 from http://www.cfo.com/article.cfm/14490470/
Such accounting is accounting from a purely realistic and numerical perspective, having nothing to do with what those numbers would signify in the context of life within the larger society.
All accountants must swear by a strict code of ethics, yet auditors have a unique experience which places them in an even more sensitive position, calling for even more attention to ethical accounting behavior. Auditors have to deal with laboriously examining the financial records of a particular individual or organization. Often times, the auditor may already come with a bias, because there is a need for an audit based on some financial misgiving or mistake on a tax report or other important financial document. Still, it is the ethical responsibility of the auditor to remain objective and provide an unbiased service that allows for the proper examination and evaluation of financial duties and responsibilities without placing individuals or organizations under…
El-Moukammal, Hisham. (2009). Auditors' code of ethics. The Certified Accountant. Web. http://www.lacpa.org.lb/Includes/Images/Docs/TC/TC404.pdf
auditing comes with immense responsibility as it plays a vital role in maintaining a check and balance and establishes an organization's credibility and repute among its stakeholder. An auditor's report is a key document that most stakeholders use when taking decisions pertaining to an organization. For this it is important for auditors to show highest levels of compliance with ethics.
Auditors and Ethics
Audit and Ethics have a very deep relationship as one goes with another. Financial audit of clients needs to be ethical and it is an area of major concern as these companies hold the public stake. The base of ethical auditing is independence and beneath it lies the principles of honesty, professional diligence and due care, integrity and confidentiality. The basic part of ethical auditing which is independence focuses on the auditor's strict adherence to the maintenance of independence from having a financial interest in its clients.…
Hall, W.D., & Renner, A.J. (1991). Lessons Auditors Ignore at Their Own Risk. Journal of Accountancy, 171(6), 63+.
United States. I feel that auditors should be held to the highest standards and any implication of illegal behavior should be punishable under law.
Supreme Court aside, Congress has done much within Sarbanes-Oxley to address the legal ramifications concerning auditor misrepresentation. The principles regarding the elimination of conflict of interest remove one of the most significant motivations for the commission of fraud. I feel that overall, the legal framework for prosecution is strong. I do, however, feel that the industry should hold itself to a higher standard. The PCAOB can make life difficult for auditing firms, and this acts as a means of control, but surely an auditor willing to commit fraud will not be discouraged. Even the threat of being removed from the profession may not suffice.
There needs, in my opinion, to be a comprehensive degree of legal recourse. This should include but not be limited to civil…
Hasnas, J. (2005). The significant meaninglessness of Arthur Andersen v. United States. Cato Supreme Court Review. Retrieved April 29, 2010 from http://faculty.msb.edu/hasnasj/GTWebSite/AndersenDraft.pdf
internal auditor, the external auditor and the CFO. The essay also reviews their respective responsibilities, inherent conflicts between them and ethical considerations for each. Finally the essay reviews the treatment of balance sheet items from the perspective of each position.
The internal auditor typically reports to the CFO and is responsible for reviewing work done by fellow employees, checking for errors, oversights and irregularities. The standard method used to conduct an audit involves examining a transaction or process and comparing how it was done with the way it is documented in an operating procedure or accounting convention, then reporting to management on any differences. The internal auditor may use a number of methods or tools to capture information, sometimes even designing or adapting an existing tool to track the information being reviewed (Blackburn, 2011).
Information presented in the internal auditor's report is vital to management's ability to run a successful…
Blackburn, V. (2011). What does an internal auditor do? Conjecture Corporation. Retrieved July 5, 2011 from http://www.wisegeek.com/what-does-an-internal-auditor-do.htm
Damewood, C.L. (2011). What does an external auditor do? Conjecture Corporation. Retrieved July 5, 2011 from http://www.wisegeek.com/what-does-an-external-auditor-do.htm
Institute of Internal Auditors. 2010. How do internal and external auditors differ and how should they relate? Retrieved July 5, 2011 from http://www.theiia.org/theiia/about-the-profession/internal-audit-faqs/?i=1086
Investopedia. (2011). What does a Chief Financial Officer (CFO) do? Retrieved July 5, 2011 from http://www.investopedia.com/ask/answers/04/042204.asp
Evaluate the factors that add to corporate fraud
The business fraud can be credited to conditions emerging from deceptive monetary reporting and misappropriation of possessions. These conditions are 3 and all 3 features of the fraud triangle have to exist for fraud to take place. Management or staff members have to have the reward or pressure to dedicate fraud, see the opportunity emerge and have the ability to justify the occasion.
Management or perhaps others in the workforce will have benefits or conditions of pressure to carry out fraud. If the choice is made by management to publish illegal monetary statements, the most typical reason for this will be threat by financial, market or entity operating conditions to the monetary security and productivity of the business. Extreme pressure is put on management to satisfy the projection made by industry experts, internal company projections or to pay back…
ISACA, 2011. COBIT Framework for IT Governance and Control. Retrieved from http://www.isaca.org/Knowledge-Center/COBIT/Pages/Overview.aspx
Louwers, T., Ramsay, R., Sinason, D., & Strawser, J. (2007). Auditing & Assurance Services: A Look Beneath the Surface. (2nd ed.). New York, New York: McGraw-Hill/Irwin.
Temple University. "Auditing ACCT 3596." Fox School of Business. 13th Ed. United States of America: Pearson, 2009. Print.
Wells, Joseph T. Corporate Fraud Handbook: Prevention and Detection. Hoboken, NJ: John Wiley & Sons, 2007. Print.
large organizations, the existence and effectiveness of its internal audit function comes into question. Not only the internal audit department should exist but it shall work effectively. An effective internal audit department can serve as the backbone of an organization's success. The International Accounting Standards oard (IAS) keeps on revising its standards to make sure that external and internal auditors of an organization carry out their duties effectively. The board recently revised the Internal auditing standard that serves the purpose of assisting the external auditor's in using the work of the internal auditors. Though external auditors are mainly concerned with auditing company's financial statements but lack of time and in some cases lack of resources raises a question as to their audit quality. In order to ensure that external audit is carried out effectively, the IAAS realized the importance of internal audit and how can the internal audit be an…
Brown, P 1983 'Independent Auditor Judgment in the Evaluation of Internal Audit Functions', Journal of Accounting Research, Vol. 21, no. 2, pp. 444 -- 455.
Adams, M 1994 'Agency Theory and the Internal Audit', Managerial Auditing Journal, Vol. 9 no. 8, pp.8 -- 12.
Nagy, A 2002, 'An assessment of the newly defined internal audit function', Managerial Auditing Journal, Vol. 17 no. 3, pp.130 -- 137.
The information that an auditor gathers as he runs analytical procedures in an entity he is auditing and as he gets better acquainted with the organization must be enough in determining materiality and assessing risks. Materiality is very important especially in helping the auditor determine what kind of audit report to be given. The auditor has to make reference to two key issues as regards what areas the financial audit covered. This helps in highlighting risk and materiality. These issues are: the limitation of the liability of the auditor to the significant information given to him and established by him by way of the materiality parameters he has established given his professional capacity and reasoning and his supplying an assurance that is not absolute but reasonable as pertaining to the financial statements' accuracy. The materiality is relative. A given figure or value may be viewed as material in…
Arenes, L. (2003) Audit. An Integrated Approach,, Eight Edition, ARC Publishing,
Downes, F., 1996.Business Finance. [Online] Available at: http://businessfinancemag.com/planning-budgeting-amp-reporting/seizing-control-annual-audit [Accessed 29 November 2014].
Joldos, A.M., Stanciu, I.C. & Grejdan, G., 2010. Pillars of the Audit Activity: Materiality and Audit Risk. Annals of the University of Petro-ani, Economics, 10(2), pp. 225-238.
Oprean, I.; Popa, I.E.; Lenghel, R.D. (2007) Audit and Financial Control Procedures, Risoprint Publishing, ClujNapoca
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/
hile it can be argued that auditors bear a degree of responsibility to evaluate management practices, Cousteau clearly took the view that on the whole the financial statements did accurately reflect the firm's circumstances; that the fraud did not constitute a widespread attempt to deceive the markets. Thus, evidence of fraud does not in and of itself render financial statements materially misleading. The nature and dollar amount of the fraud must also be taken into consideration, all within the context of the totality of publicly available information about the firm.
Braun, K. (2001). The Disposition of Audit-Detected Misstatements: An Examination of Risk and Reward Factors and Aggregation Effects. Contemporary Accounting Research. Vol 18, No. 1 (Spring 2001), pp.71-99.
Shunglu, V.K. (1998). Role of the Auditor in Promoting Good Governance. International Journal of Government Accounting. Retrieved September 7, 2009 from http://findarticles.com/p/articles/mi_qa3662/is_199804/ai_n8794931/
Babu, T.R.R. (2004). Audit Materiality. Oxford University. Retrieved…
Braun, K. (2001). The Disposition of Audit-Detected Misstatements: An Examination of Risk and Reward Factors and Aggregation Effects. Contemporary Accounting Research. Vol 18, No. 1 (Spring 2001), pp.71-99.
Shunglu, V.K. (1998). Role of the Auditor in Promoting Good Governance. International Journal of Government Accounting. Retrieved September 7, 2009 from http://findarticles.com/p/articles/mi_qa3662/is_199804/ai_n8794931/
Babu, T.R.R. (2004). Audit Materiality. Oxford University. Retrieved September 7, 2009 from http://eprints.ouls.ox.ac.uk/archive/00001060/01/AUDIT_MATERIALITY.pdf
Sauer, R. (2007). The SEC's Materiality Standard Becoming Overly Vague and Excessively Onerous. Business Lawyer. Vol. 62, No. 2, pp 317-357.
ite Aid Fraud
Over the years, there have been numerous cases of financial fraud perpetuated within the organizational mainstream of major companies. Financial fraud is often a well-coordinated sort of white-collar crime that often -- but not always - requires complicity and collusion amongst financial accountants, top management and auditors. ite Aid came to the limelight after the U.S. Securities and Exchange Commission announced that it would be filing accounting fraud charges against the company in 2002
Meanwhile, the United States Attorney for the Middle District of Pennsylvania leveled similar criminal charges accusing former CFO Frank Bergonzi, former CEO Martin Grass and former Vice Chairman Franklin Brown of perpetuating an immense accounting fraud scheme
. Compounding the crisis, according to former ite Aid COO, Timothy Noonan, were years of legal coaching amongst staff and mid-level employees. As investigations ensued, evidence of fraudulent manipulation of accounts, corporate malfeasance, and financial overstatement…
Carlin, Wayne M. & Pennington, Nelson "SEC Announces Fraud Charges Against Former Rite Aid Senior Management" Security and Exchange Commission 2002
Federwisch, Anne Exploring Ethical Lapses during the Rite Aid Crisis Santa Clara University: Center for Allied Ethics, 2002
Jennings, Marianne Seven Signs of Ethical Collapse: How to Spot Moral Meltdowns Before it's Too Late Arizona State University W.P. Carey School of Business, 2007
Carlin, Wayne M. & Pennington, Nelson "SEC Announces Fraud Charges Against Former Rite Aid Senior Management" Security and Exchange Commission 2002
Once this has happened, the auditor is in a position to assess the risk of material misstatement in the financial statements. The auditor should consider, for example, management's selection and application of accounting principles in assessing the risk of fraud. Some red flags identified in the alert are when the transaction is overly complex; whether or not management has discussed the accounting of such transactions; if management is placing undue emphasis on accounting treatment of a transaction; if transactions involve third parties, including special purpose entities; and if the transactions do not have sufficient substance.
The alert prescribes a course of action for situations when an auditor believes that there is a significant risk of material misstatement. The auditor must identify his or her findings in an engagement completion document; document actions taken to address significant unusual transactions and must state the basis for the conclusions reached.
In the Lehman…
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
Johnson Bank v. George Korbaken Company
Johnson Bank v. George Korbakes Company
Over the last several years, the role of the auditor has been continually evolving. This is because financial institutions are relying on the information they are provided with to help them make better choices in the long-term. However, there are times when these firms may not have accurate figures and erroneously report their findings. When this happens, there is a possibility of these facts leading to incorrect decisions. (Adelopo, 2012) ("Johnson Bank sued George Korabakes," 2006)
The case of Johnson Bank v. George Korbakes Company is examining these factors and the long-term impacts they will have on various stakeholders. To determine if the auditor is responsible for the claims they make requires carefully examining the effects. This will be accomplished by focusing on the case itself, the primary / secondary legal questions, the rule of law, the court's…
Johnson Bank sued George Korabakes. (2013). Find Law. Retrieved from:
Johnson Bank sued George Korabakes. (2013). Justia. Retrieved from:
Auditing; Topic: Materiality in Auditing
With respect to the field of auditing, materiality is a critically important concept addressing the significance of discrepancies, amounts, and transactions. Specific materiality guidelines are required in accounting practices to avoid judgmental (legal) decisions. Materiality is applied for most, if not all, economic decisions, and the topic of materiality is not a new issue. Disclosures in re financial statements have been emphasized by courts in the United Kingdom since the 1800's, whereas materiality initially rose to importance in the United States following 1933's Security act. The significance of the materiality concept and its implications are pertinent to business decisions, as well as for analysis and preparation of financial statements and in order to apply GAAP, generally accepted accounting principles.
For the accounting field, as well as for all fields of management, the concept of materiality is central to decision making. If something is considered to…
Ball, R., and P. Brown. (1968). An Empirical Evaluation of Accounting Income Numbers. Journal of Accounting Research 6 (Autumn): 158-178
Brennan, N. & Gray, S., (2005). The Impact of Materiality: The Impact of Materiality:. The ICFAI Journal of Accounting Research, IV (1), pp. 61-84.
Chewning G., S. Wheeler, and K. Chan. (1998). Evidence on Auditor and Investor Materiality Thresholds Resulting from Equity-for-Debt Swaps. Auditing: A Journal of Practice and Theory (Spring): 39-53.
Collins, D., and W. Salatka. (1993). Noisy Accounting Earnings Signals and Earnings Response Coefficients: The Case of Foreign Currency Accounting. Contemporary Accounting Research 10(1) Fall: 119-159.
Explain the Securities and Exchange Commission's rationale to charge Cardillo executives with each of the following violations:
Making false representations to outside auditors
Without a doubt, executives of Cardillo Travel Systems made incorrect accounting transactions. As a result, this gave rise to false representations to external auditors. The rational for the SEC to charge these executives with this particular violation is linked to Management's Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934. In accordance to this guideline, the SEC expects the company's management to be accountable for maintaining an internal control system over financial report. This is so as to offer sensible guarantee with respect to the reliability of preparing and reporting of financial statements for external users of such statements, comprising of the external auditors (SEC, 2007).
Failing to maintain accurate financial records
Management of a company is…
We are living in times of continuous change that thrives on information. Information is the cornerstone of the financial construct of organizations. Information and access thereto drives the success of organizations in present times. The way the external world receives the statements of organizations is causal to its perception by individuals and institutions in evaluating it. As such, it is imperative that the architects and designers of this vital information need to pursue diligently highest levels of moral, ethical, and professional standards in preparing it. In providing for the financial and economical framework for such information, services of auditors are simply indispensable. The audited reports of an organization is the basis on which the organization makes its statement of intent public and helps aid the process of decision making and perception about it in the capital and investment markets (Franca & Maria, n.d.).
IMPORTANCE OF MATERIALITY IN AUDITING
Acito, A.A., J.J. Burks, and W.B. Johnson. 2009. Materiality decisions and the correction of accounting errors. The Accounting Review 84 (3): 659-688.
American Institute of Certified Public Accountants (AICPA). 2008. Clarification and Convergence. An AICPA Auditing Standards Board Project. New York: AICPA, July.
Brody, R.G., D.J. Lowe, and K. Pany. 2003. Could $51 million be immaterial when Enron reports income of $105 million? Accounting Horizons 17 (2): 153-160
Eilifsen, A. & Messier, W., 2014. Materiality guidance of the major public accounting firms. Auditing: A Journal of Practice & Theory.
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].
Statistical Process Control
What is the correct relationship of internal audit to senior management?
The correct relationship of internal audit to senior management is a supportive relationship. It is imperative that senior management makes it known, through is ways and actions, that it supports internal audit. One piece of evidence consists of senior management granting internal audit easy access to senior management and the audit committee. The process of senior management providing easy access for internal audit guarantees the correct relationship of internal audit to senior management.
How should conflict be managed? Is conflict inevitable?
Conflict is always inevitable between internal audit and senior management. When internal audit interact with senior management, there is always a potential for conflict. In fact, it is virtually impossible for people with diverse background skills and norms to work together; make decisions, and try to meet project goals and objectives without conflict. Internal audit…
accounting standards and concepts violated by Ligand Pharmaceuticals, as well as the role of the PCAOB as a regulatory body.
Standards for Accounting of Sales Returns
The applicable standard includes FAS 48, which establishes standards for revenue recognition when the right of return exists. FAS 48, issued in 1981, specifies under what circumstances revenue is recognized on a sale in which a product may be returned. For a business that sells its products but gives buyers the right to return the product, FAS 48, paragraph 6, states that revenue from the sales transaction is recognized at the time of sale only if all of the six conditions specified in items a through f were met. One condition which proved a problem for Ligand was that "the amount of future returns can be reasonably estimated (paragraph 8)" (FASB, 1981, p. 5).
Paragraph 6 further specifies that, in the event that all…
AICPA. (1972). AU Section 560 Subsequent Events. Retrieved December 2, 2011 from: http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00560.pdf
FASB. (1981). Statement of Financial Accounting Standards No. 48). Retrieved December 2, 2011 from: http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175820909255&blobheader=application%2Fpdf
Hilzenrath, D.S. (2010, July 11). Critics question effectiveness of auditing oversight board. The Washington Post. Retrieved December 2, 2011 from: http://www.washingtonpost.com/wp-dyn/content/article/2010/07/10/AR2010071000074.html
McKenna, F. (2010, June 26). Bigger, stronger, faster: The PCAOB after the Supreme Court ruling. Retrieved December 2, 2011 from: http://retheauditors.com/2010/06/26/bigger-stronger-faster-the-pcaob-after-the-supreme-court-ruling/
Madoff Securities case occurred because of fraudulent investment schemes due to lack of regulation as well as insufficient oversight of specific financial intermediaries along with dismissal of opportunistic behavior. To understand why such an incident happened in the first place, it is important to identify the kind of scheme led by Madoff. It is called a Ponzi scheme. In a Ponzi scheme, an unsustainably big pool of investors must be maintained to keep it afloat. It begins with a simple promise to a few investors of doubling an amount they decided to invest. Rather than investing that money and doubling it, the person involved in the scheme takes money from a successive round of investors and the scheme continues (Knapp, 2011). The formula is ROI-R-I.
The reason why the Ponzi scheme went unnoticed for so long was partly because of Madoff's reputation and a huge regulatory hole. This major discrepancy…
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
Extant literature has been dedicated to the concept of corporate ethics and governance. In regard to the Satyam scenario, Afsharipour (2010) discussed the expectations as well as challenges that face the Indian corporate governance landscape. The paper discussed corporate reforms that were put in place as a consequence of the Satyam fraud. The author recognizes the dire need for proper governance in the entire Indian corporate landscape as a consequence of India's ever expanding economy. Afsharipour (2010) indicated that there has been changes in the corporate governance conditions prior to and after the Satyam corporate scandal.The author indicates that even though the former Chairman of the company, Mr. amalinga aju as well as his family jointly owned close to 8% of the company's shares, the company had as a majority, an independent Board of Directors that included various Indian luminaries and hence complying with the Clause 19 requirements of corporate…
Afsharipour, A. (2010): The Promise and Challenges of India's Corporate Governance Reforms,
UC Davis Legal Studies Research Paper Series, Research Paper No. 223
Anderson, D., J.R. Francis, and D.J. Stokes. 1993. Auditing, directorships and the demand for monitoring. Journal of Accounting and Public Policy 12 (4): 353-375.
Berle, A. Means, G. (1932), The Modern Corporation and Private Property, MacMillan, New York, NY.
The ABC system uses a much lage numbe and vaiety of cost dives than the one o two volume-based cost dives typical fo a taditional cost system. As a esult, the ABC method has inceased accuacy.
In contacts, it is explained that a taditional cost system uses only volume-based cost dives, such as diect labo and machine hous, and ignoes the key ole of suppot activities, such as numbe of setups and design changes, in poducing many moden poducts and sevices. Such volume-based cost dives often lead to one goup of poducts subsidizing anothe goup of poducts. These subsidies often ceate the appeaance that one goup of poducts is highly pofitable, advesely affecting the picing and competitiveness of anothe goup of poducts. In a highly competitive envionment with complex poducts and sevices, accuate cost infomation can be citical to sound planning and decision-making. (Cook, Gove & Cobun, 2000, p. 305)…
references to cash. The daily language of accounting contains expressions such as "liquid capital" or simply "liquidity," terms that simply refer to means of payment that are easily accessible. In practice, "liquid capital" and "liquidity" can have three and only three forms. The ability to pay can be demonstrated by the presence of means of payment in the form of: cash holdings, deposits in bank accounts of various kinds, and prearranged rights to draw on credits of various kinds.
The concept of illiquidity is simply the logical negation of the concept of liquidity. You are illiquid when you cannot pay your debts at a given moment or within a given period. The transition from a state of liquidity to a state of illiquidity that is more than just temporary is stated in the familiar (and for most interested parties unpleasant and fatal) expression "X has suspended payments." (Kirkegaard, 1997, pp. 41-43)
Bresnahan, K.M. (2000). Investments in Human Capital: A Crisis for Financial Managers. The Public Manager, 29(2), 9.
Cook, T.J., Grove, H.D., & Coburn, S. (2000). ABC Process-Based Capital Budgeting. Journal of Managerial Issues, 12(3), 305.
Additionally, eston Smith's wife Susan Jones-Smith, was also a finance executive at the company, a further example of the incestuous relationships that characterized the financial leadership of HealthSouth. A failure of the company meant the failure in the financial future of the family of one's friends and spouses.
Another warning sign should have been the nature of the company's assets. The firm was able to conceal its financial shenanigans for so long from outside auditors because of its multiple and constant stream of acquisitions of a variety of inpatient and outpatient facilities. The nature of the acquisitions should have been a clear warning sign to be wary of HealthSouth's spiraling profits. The volume of transactions meant there was great difficulty in keeping track of the 'real' value of the different operations, despite the company's alleged revenues on paper.
Also, the existence of such superficial nods to ethical practices, such as…
Stuart, Alix Nyberg. (2005) "Keeping secrets: how five CFOs cooked the books at HealthSouth." CFO Magazine.
Network Audit Case Study
This study focuses on a comprehensive list of top ten tips of network and business continuity audit. These tips might lead businesses to survive and thrive in their audits without the need to overhaul their entire infrastructure.
Top ten network and business continuity-auditing tips
Segmentation of tasks distinctively: It depends on the principle of drive and conquers. It involves brainstorming about the organization's security tasks in terms of pieces and separating them into logically and physically segments. For instance, security tasks depend on ensuring people are kept on the outside by using both physical and firewall security (Bergmann & Pamplin, 2013). However, other components are safely kept on the inside using antivirus. Security does not solely imply that people should be kept from the outside. Obviously, companies have lost information from within the business. In this case, each piece must be documented and prioritized.
Bergmann, T.S., & Pamplin, B. (2013). CISA - Certified Information Systems Auditor: Study guide. Indianapolis, Ind: Wiley Pub.
Gregory, P.H. (2010). CISA certified information systems auditor all-in-one exam guide. New York: McGraw-Hill.
Company members falsifying, altering, destroying or otherwise tempering with organizational documents risk punishments between fines up to 20 years imprisonment
Organizational staff members notifying their superiors or the legal authorities of fraudulent operations are protected under the whistleblower protection provision. People who retaliate against the individuals who offer condemning information of the company are punished with anything between a fine up to ten years imprisonment (Prahalad, 2008).
As an addition to these provisions, it is automatically implied that the auditor will keep an objective opinion and will perform his tasks within the highest standards of professional quality. Yet, since it is possible for the auditor to have shares in the respective organization, have a child employed there or other such situations, he is asked to identify the existence of any conflicts of interest and withdraw from the audit process.
At a first level, the Sarbanes-Oxley act was expected…
Donaldson, W.H., 2005, Testimony Concerning the Impact of the Sarbanes-Oxley Act, Securities and Exchange Commission, http://www.sec.gov/news/testimony/ts042105whd.htm last accessed on May 20, 2010
Fass, a., 2003, One Year Later, the Impact of Sarbanes-Oxley, Forbes, http://www.forbes.com/2003/07/22/cz_af_0722sarbanes.html last accessed on May 20, 2010
Prahalad, a., 2008, Key Provisions of the Sarbanes-Oxley Act, Articles Base, http://www.articlesbase.com/online-business-articles/key-provisions-of-the-sarbanes-oxley-act-509714.html last accessed on May 20, 2010
2006, the Sarbanes-Oxley Act, Sox Law, http://www.soxlaw.com / last accessed on May 20, 2010
The first three organizations in line to recuperate their funds were Citigroup, J.P. Morgan and General Electric Group. They had been offering financial solutions and encouragement to purchase the WorldCom stock based on a favorable business relationship. However, at the time when bankruptcy procedures were commenced, the three organizations recognized their losses and intended to recuperate them.
A succinct presentation of the period surrounding the crisis could be reveled by the media stories:
27 June 2002 - information on the people affected by the WorldCom crisis become available - about 60 banks across the globe had granted loans to the organization or purchase bonds
27 June 2002 - SEC charges the organization with fraud and three organizational leaders are subpoenaed before a governmental committee
28 June 2002 - John Sidgmore announced a cut in costs by $1 billion and the downsize on 17,000 employees
U.S. President George Bush condemns organizational…
Cooper, C., 2008, Extraordinary Circumstances: The Journey of a Corporate Whistleblower, John Wiley and Sons Inc.
Eichenwald, K., August 8, 2002, for WorldCom, Acquisitions Were Behind its Rise and Fall, New York Times
Faber, D., September 8, 2003, the Rise and Fraud of WorldCom, CNBC
McCafferty, J., July 2004, Extreme Makeover: How Robert Blakely and an Army of Accountants Turned Fraud-Ridden WorldCom into Squeaky-Clean MCI, CFO, No. 46
Internal Fraud Detection
Fraud can be detected by deliberate effort through internal control efforts or by coincidence or chance. When companies do not practice strong internal control, it leaves the door open for employees to misappropriate assets without being detected, except by chance. y the time fraud is detected by chance, it could have cost a company millions of dollars in misappropriated assets.
The first coincidence discovered by the magazine company was in the process of a new auditor in an effort to get to know his new company and their accounting codes taking invoices to a vice president responsible for approving payment on them. The very top invoice was a forged signature, and upon evaluation, more invoices were discovered to have contained forged signatures, which is what set up the investigation. According to (Global Economic Crime Survey), 13% of internal fraud is detected by accident, 27% reported fraud in…
Global Economic Crime Survey. Nov 2009. http://www.pwc.com/en_GX/gx/economic-crime-survey-2009.pdf . 18 Mar 2013.
Internal Controls and Fraud Proofing. 2013. article from http://www.aicpa.org/InterestAreas/ForensicAndValuation/...rnal%20Controls%20and%20Fraudproofing.aspx . 18 Mar 2013.
The report reflects the actual figures. Variance columns are presented in comparing the actual with the revised budget. There is reconciliation between the budgetary basis and GAAP are presented on the comparison schedule. The major differences are in how they are reported. There are budgetary comparison schedules provided for reserve funds. All special reserves are included. ("Comprehensive Annual Financial eport," 2012)
3C. Look at the note that describes the basis of budgeting (usually in the Summary of Significant Accounting Policies). Is the budget prepared on the GAAP basis or some other basis? Are the differences, if any, between the budgetary basis and GAAP clearly explained? Does the note indicate that encumbrance accounting is used?
The budget is prepared on a GAAP basis. The differences between the two are clearly explained in the approaches. It is indicating that encumbrance accounting is not used. ("Comprehensive Annual Financial eport," 2012)
4A. Look at…
Discuss the key difference between conducting a financial audit and a fraud audit, and the related level of responsibility of the auditing firm.
Financial audits are typically carried out by certified public accountants or outside agencies or firms that work directly on behalf of individual companies. At times financial audits may be initiated by government entities. The audit itself is more of a "double-check" of financial reports and practices (Weinberg, 2003). Financial audits are deemed complete upon verification that numbers are accurate. Completed financial audits may prove or disprove information, but discrepancies will typically not result in the same serious consequences as those uncovered during a fraud investigation or audit.
Fraud auditing usually comes at the demand of the U.S. court system - usually the work is carried out by the government or privately-held third parties. Fraud audits look for dishonesty and hidden figures. They probe deeper than…
Dyck, A., Morse, A., & Zingales, L. (2010). Who Blows the Whistle on Corporate Fraud?. Journal of Finance, 65(6), 2213-2253. doi:10.1111/j.1540-6261.2010.01614.x.
Lee, A. (2012). MF Global client funds: how new NFA proposal would work. International Financial Law Review, 41.
Spencer, J. (2011, December 14). MF Global: A search for answers and millions of dollars. Star Tribune (Minneapolis, MN).
Weinberg, J.A. (2003). Accounting for Corporate Behavior. Economic Quarterly (10697225), 89(3), 1-20.
Sarbanes-Oxley act on auditing
Changes as a result of the 2002 Sarbanes-Oxley law
In the wake of numerous corporate accounting scandals, several of which involved the famed and trusted accounting firm of Arthur Anderson, the U.S. Congress instituted the 2002 Sarbanes-Oxley Act (SOA). The Act was designed to reduce the likelihood of "cooked books, exorbitant [undisclosed] salaries and loans to CEOs, conflicts of interest by auditors, and hyped-up stock reports by securities analysts at some of America's highest-flying companies and investment firms" (Has Sarbanes-Oxley made a dent in corporate America's armor, 2004, Knowledge @Wharton). One of the reforms of SOA was to demand "significantly higher responsibility from audit committees of publicly traded companies" while amending the Securities Exchange Act of 1934 "to make the audit committee of a reporting company an important participant in the financial reporting process of the company" (Pandit, Subrahmanyam, & Conway 2005). Audit committees have been…
Has Sarbanes-Oxley made a dent in corporate America's armor? (2004).
Knowledge @ Wharton. Retrieved August 26, 2011 at http://knowledge.wharton.upenn.edu/article.cfm?articleid=823
Pandit, Ganesh M. Vijaya Subrahmanyam, & Grace M. Conway. (2005). Audit committee reports before and after Sarbanes-Oxley. CPA Journal. Retrieved August 26, 2011 at http://www.nysscpa.org/cpajournal/2005/1005/essentials/p42.htm
Any company that is a leader in an industry knows that what they sell had better be both quality and innovative in order to compete within their designated industry. iordan Manufacturing is no different. iordan has long been a company that offers both quality and innovative products in the plastic molding and parts industry. It also has a strong internal structure that works harmoniously with the objectives of the company. Despite iordan's position as a leader in their industry, the company does face some internal challenges, which work against their company objectives. This paper will look at these areas that require improvement, including finance and accounting, training budget, shipping and receiving, human resources, and the new pyramid bottle cap design for The Taylor Group. The paper will utilize the Issue, ule, Analysis and Conclusion (IAC) method in each distinct area.
Finance and Accounting
Issue: One of the chief…
Association for Automatic Identification and Mobility: Technologies: RFID / What is RFID?.
Retrieved on 19 April 2011:
Unauthorized Information Systems Access
Scan the Internet for articles or evidence of Bank of America being a victim of hacking. Based on the results of your search, if the bank has been hacked, assess the circumstances around the hacking and the resulting impact to the bank's customers and operations. If the bank has not reported hacking incidents, assess the most likely security measures that the bank has implemented to protect the business from hackers.
Bank of America has experienced many data breaches in the past, yet the most troublesome are the ones where customers' data is stolen and immediately resold on the black market by employees. There are also those instances where employees and subcontractors gain unauthorized access to ATMs and steal money. These are two of the recent incidences of how the Bank of America security systems and processes have been hacked by employees and those operating in the…
Adams, J. (2011). Bank of America copes with two alleged insider breaches. Cardline, 11(22), 4.
Coppotelli, D.J. (1982). Information security strategy. Security Management, 26(5), 86-86.
Hulme, T. (2012). Information governance: Sharing the IBM approach. Business Information Review, 29(2), 99-104.
Twum, F., & Ahenkora, K. (2012). Internet banking security strategy: Securing customer trust. Journal of Management and Strategy, 3(4), 78-n/a.
Audit Planning Control
The American Institute of CPAs (AICPA) has published guidelines for preparing an audit plan. The first step is the preliminary engagement activities, which is focused on establishing an understanding of the terms of engagement for the audit. The steps in the planning process are to identify the scope of the audit; to determine the reporting objectives; to consider the results of the preliminary engagement and to determine the resources that are going to be required to conduct the audit -- and the timing of when those resources will be needed (AICPA, 2015).
To audit Home Depot, it is important first to determine what the scope will be, as this will help to determine the resource requirements. A preliminary meeting with the company will help to determine this -- for example is it necessary to visit stores? Conduct inventory? Talk to Canadian HQ? Or is a visit to…
.3763.EN 2002). Washington's valuation of companies for XYZ could potentially be argued as not compromising Big 4's integrity in the audit according to the standards set forth by Sarbanes-Oxley, but the performance of background checks on prospective XYZ employees by Johnson, another partner at Big 4, is a clear performance of human resources duties, and this entanglement is explicitly forbidden by Section 201 (H..3763.EN 2002). Then there are the obvious issues of dishonesty that are tantamount to fraud in some cases, and perhaps even qualify as fraud. Certainly, the i=outright attempt to persuade Smith to ignore certain material facts in his audit is in violation of Section 303, and if Smith carried through with this request he (and arguably anyone who asked him to falsify information, though this is not entirely clear in the Sarbanes-Oxley Act as written) would also be in violation of Section 802, which carries a potential…
H.R.3763.ENR. (2002). Bill text. Accessed 4 February 2011. http://thomas.loc.gov/cgi-bin/query/z-c107:H.R.3763.ENR:%20
Kuschnik, B. (2008). The Sarbanes-Oxley Act: "Big Brother is watching" you or Adequate Measures of Corporate Governance Regulation? Rutgers Business Law Journal 5, 64 -- 95. Accessed 4 February 2011. http://businesslaw.newark.rutgers.edu/RBLJ_vol5_no1_kuschnik.pdf
If this policy was in place at the time of the Enron scandal, Anderson may not have had any incentive to lie on behalf of Enron. Another extremely important rule that would have had an impact upon Enron is the rotation rule. The lead and concurrent audit partners cannot stay on a particular public company for more than five years, they must continually rotate. Had this rule been in place, Arthur Anderson himself who sat twenty years on Enron would not have had the opportunity to conduct deceit and destroy documentation.
The primary aspect of OX in application to preventing scandals such as Enron is provide much more repercussions for corporate finance abuse and more importantly, for greater responsibility for all parties involved in audits. The audit committee of all public companies are now required to overview all audits that are being conducted. In addition, CEOs and CFOs of public…
SOX would have had a major impact upon Enron because it provides many filters in which to catch corporate finance disclosure and duplicity. The creation of a public company accounting oversight board was the first major step of SOX. This board is designed to preventing auditing abuses. The board registers, oversees, investigates and disciplines all accounting firms that auditing public companies. As a result, it provided a level of supervision on accounting firms that was not there at the outset. In addition auditing standards were established across the board which put much more accountability in the hand of auditors and held them accountable to be checked by a national level committee. One of the key reasons that the Enron scandal occurred is because the accounting firm, Arthur Anderson, earned more from Enron in consulting services than in auditing. Therefore they were willing to compromise their integrity in order to preserve their consulting business. The new policy prohibits auditors from "contemporaneously" providing companies with both auditing and specific types of consulting services. If this policy was in place at the time of the Enron scandal, Anderson may not have had any incentive to lie on behalf of Enron. Another extremely important rule that would have had an impact upon Enron is the rotation rule. The lead and concurrent audit partners cannot stay on a particular public company for more than five years, they must continually rotate. Had this rule been in place, Arthur Anderson himself who sat twenty years on Enron would not have had the opportunity to conduct deceit and destroy documentation.
The primary aspect of SOX in application to preventing scandals such as Enron is provide much more repercussions for corporate finance abuse and more importantly, for greater responsibility for all parties involved in audits. The audit committee of all public companies are now required to overview all audits that are being conducted. In addition, CEOs and CFOs of public companies are required to personally certify accuracy for their financial reports. This holds them accountable and provides significant penalties for false certifications. These safeguards, if they were in place with Enron would have put much more reasonability and consequences upon the actions of the CEO and CFO, thus possibly deterring their actions. In general the criminal punishments associated with obstruction of justice and securities fraud. As a result, the deterrents in place may have well have deterred Enron, Anderson and all other parties involved to reconsider their actions.
The Role of Empirical Evidence in Evaluating the Wisdom of the Sarbanes-Oxley Act, 40 University of San Francisco Law Review 823-844 (2006) http://eprints.law.duke.edu/archive/00000840/" Public and Private Enforcement of the Securities Laws: Have Things Changed Since Enron?, 80 Notre Dame Law Review 893-907 (2005) (with Randall S. Thomas)
A higher figure reflects a better position of a given company.
2008 Quick ratio = 5.95
2009 Quick ratio =6.83
2010 Quick ratio =7.23
The trend in quick ratio generally indicates an improvement or good trend in the company's ability to effectively meet its various short-term obligations using most of its liquid assets.
Return on investment (ROI)
A performance measure is employed in evaluate the efficiency of a given investment. It can also be used in comparing its efficiency to several other investments.
Return on Investment = Net Income after taxes/Shareholder's Equity (Total Assets-Total Liabilities)
2008 Return on investment = 2,118,827/( 1,810,626,071- 246,564,395)= 2,118,827/1,564,061,676 = 0.14%
2009 Return on investment = 36,165,310 / (1,649,954,411-172,891,948) = 36,165,310/1477062463= 2.5%
2010 Return on investment =73,636,501 / (1,592,528,763-123,488,012) =73,636,501/1,469,040,751=5%
The ROI trend indicates that the company is performing well through the years. It is experiencing an impressive growth in its ROI
The overall examination of financial documents is integral to the proper functioning of government entities. For one, examinations help to prevent budgetary shortfalls that may jeopardize the economic viability of governments. Stress tests, are particular useful as they provide outlooks contingent of varying macroeconomic situations. These stress test and examinations, when done correctly, allow stakeholders to make proper assessments as to the financial stability of their government. Without these assessments, unexpected events may cause policy changes that harm society overall. Aspects such as the budget cuts currently underway in many of the nation's largest states are a direct result of lackluster financial examinations. Consequently, the individuals will have to sacrifice in the form of higher taxes and lower benefits (McKenna, 2006).
When evaluating Swobodaville's financial condition based on the partial list of factors given, a number of elements cause concern. First, the low income, sales tax exempt households,…
1) Gilbert W. Joseph and Terry J. Engle (December 2005). "The Use of Control Self-Assessment by Independent Auditors." The CPA Journal.
2) Guthrie, J., Roger Burritt and Elaine Evans. 2011. "The Relationship between Academic Accounting Research and Professional Practice," in Bridging the Gap between Academic Accounting Research and Professional Practice, eds. Elaine Evans, Roger Burritt and James Guthrie.
3) McKenna, Francine. "Auditors and Audit Reports: Is The Firm's "John Hancock" Enough?"( 2006). Forbes
Electronic communication has increased the availability and speed at which financial information is made public. Announcements and stock prices are made available in real time. Aggregated and historical information is widely available on information aggregator sites like Yahoo Finance. Annual reports are publicly available, and securities regulators insist that they be made publicly available.
The increased availability of financial information about companies serves to improve both the transparency and liquidity of financial markets. Investors of all types and abilities now have access to the information that they need to make information decisions. That all companies must produce consistent financial statements according to GAAP also helps with the transparency of financial information. ith easy access to this information, investors can become more educated and more confident. Ultimately, this improves investor confidence in the system and liquidity in the market, improving the market's function.
Because publishing this material improves the…
Reitmans 2005 Annual Report, in possession of the author
Alimentation Couche-Tard Annual Report 2010. Retrieved May 3, 2011 from http://www.couche-tard.com/corporatif/modules/AxialRealisation/img_repository/files/documents/relation-investisseur/Rapport%20annuel/Annual%20report%202010.pdf
United States from Nigeria in order to add to my life and career experience. I began my venture by joining the United States Navy. My main motivation for this was to raise the necessary funds to enroll in a college. After one year I was honorably discharged as a result of glaucoma, and I could not raise the funds that I needed. This however did not deter me from my plans and I enrolled in a local community college instead. Here I made the Dean's list after one semester, and received a scholarship. It is also here that I continued to develop my interest in finance and banking.
One of the reasons I want to continue with graduate work in this field then is the fact that my work and studies so far have unlocked the world of finance for me, and I find the pursuit of the field extremely…
In cities, urban dwellers have less room to store large amounts of goods in small apartments, and have more access to smaller, independent stores that offer more boutique services and access to wider varieties of specific goods. Discount shopping is easier for a urban walker, comparing prices on a street, and also an urban bookstore might have a wider selection than al-Mart, as might a grocery store, but only at al-Mart can a customer buy a best-seller and brand name groceries at low prices at the same time. Additionally, partly because of bad press regarding its labor practices, and also because European consumers tend to buy less in bulk, at the same time, than their American counterparts, al-Mart's success in Europe has been less dominant than its home country of America, although its international sales remain strong.
Identify the name of the company's independent accountants (auditors) and explain in your…
Annual Report." (2006) Wal-Mart Official Website. Retrieved 10 Jun 2006 at http://walmartstores.com/Files/2006_annual_report.pdf
Dividend History." (2006) Wal-Mart Official Website. Retrieved 10 Jun 2006 at http://www.walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=453&contId=5702
Form 10-Q for Wal-Mart Stores, Inc.: Quarterly Report." (2006) Yahoo finance. Retrieved 10 Jun 2006 at http://biz.yahoo.com/e/050603/wmt10-q.html
Organizational Leadership." (2006) Wal-Mart Official Website. Retrieved 10 Jun 2006 at http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=540&contId=41
In the wake of scandals such as Enron and others, corporate fraud still appears to be prevalent across the business world. The reasons for this can be many and varied, although greed and a sense of hubris appear to be two of the common role players. In other cases, desperation could also be a factor, where a business is in danger of failing and its owners or managers see little choice but to cheat or sing with the boat. In many of the fraud cases, questions regarding regulation also abound, where regulatory authorities appear to be unable to either identify fraudulent activity or to sufficiently monitor the actions of those involved. This appears to be at least partly the case as far as ussell Wasendorf Sr. is concerned, who recently confessed to have committed fraud as the owner of his brokerage for 20 years Huffstutter and Polansek, 2012).…
Holton, C. (2009). Identifying disgruntled employee systems fraud risk through text mining: A simple solution for a multi-billion dollar problem. Decision Support Systems, Vol. 46. Retrieved from: ftp://184.108.40.206/gyliao/TODylan/Identifying%20disgruntled%20employee%20systems%20fraud%20risk%20through%20text%20mining-%20A%20simple%20solution%20for%20a%20multi-billion%20dollar%20problem.pdf
Huffstutter, P.J. And Polansek, T. (2012, Jul 13). With ego too big to fail, Iowa broker admits 20-year fraud. Reuters. Retrieved from: http://news.yahoo.com/pfgbest-ceo-arrested-iowa-brokerage-fails-181115538 -- sector.html
Johnson, S.A., Ryan, H.E., and Tian, Y.S. (2008, Feb 29). Managerial Incentives and Corporate Fraud: The Sources of Incentives Matter. Retrieved from: http://www2.wu-wien.ac.at/rof/papers/pdf/Johnson-Ryan-Tian_Managerial%20Incentives%20and%20Corporate%20Fraud.pdf
Langevoort, D.C. (2007). On Leaving Corporate Executives "Naked, Homeless and Without Wheels": Corporate Fraud, Equitable Remedies, and the Debate Over Entity vs. Individual Liability. Georgetown Law; The Scholarly Commons. Retrieved from: http://scholarship.law.georgetown.edu/cgi/viewcontent.cgi?article=1453&context=facpub&sei-redir=1&referer=http%3A%2F%2Fscholar.google.co.za%2Fscholar%3Fhl%3Den%26q%3Dcontrols%2Bon%2Bcorporate%2Bfraud%26btnG%3D%26as_sdt%3D1%252C5%26as_sdtp%3D#search=%22controls%20corporate%20fraud%22
Describe the company, the business problem the company was addressing with the system implementation, the system chosen to implement, and the company's rationale for selecting the system to solve the problem.
Wal-Mart, a company that enjoys a significant market share in the U.S. food industry, rolled out its multi-phased project. This marked the beginning of implementing the company's long ditched in-house IT systems, which favored their operations with vendors. However, implementation of the SAP system is already raising red flags. This is because the system comes with costly financial works, which have strained the company (Scheck, 2010). While the project was aimed at leading the firm to growth, Wal-Mart recorded a significant sales decline. This was one of the company's worst performance over three decades now, been beaten by new corporations from Germany and South Korea. As local competitors maintained the pace set by Wal-Mart, most…
Hellens, L, Nielsen, S., Beekhuyzen, J., & Ebrary, Inc. (2008). Qualitative case studies on implementation of enterprise wide systems. Hershey, PA: Idea Group Pub.
Jacobs, A.J. (2012). Information system implementations: Using a leadership quality matrix for success. S.l.: Authorhouse.
Ramachandran, S. (2007). Digital VLSI systems design: A design manual for implementation of projects on FPGAs and ASICs using Verilog. Dordrecht, Netherlands: Springer.
Scheck, D.E. (2010). Implementation project for traffic signal monitor/recorder and analysis system. Athens, Ohio: Dept. Of Industrial & Systems Engineering, Ohio University.
The principle activities of Rolls Royce are to provide "integrated power solutions for customers in civil and defense aerospace, marine and energy markets." The breakdown is as following:
The auditor's report conveys the following findings.
"The financial statements give a true and fair view of the state of the company's affairs"
The financial statements have been properly prepared in accordance with IFRS and UK GAAP
The director's remuneration report has been properly prepared and is consistent with the financial statements
There is nothing to report under the Companies Act of 2006.
The ratios for Rolls Royce are as follows:
Eg Trade receivables period
Gross profit margin
Net profit margin
Inventory turnover period
2561/8841 x 365
Payables' turnover period
Rolls Royce Holdings plc Annual Report 2012.
Note the figures are indicative and do not represent actual industry averages. Nevertheless, you are required to assume these are the actual industry averages and use these in your analysis.
The figures used in calculating the trade receivables period ratio serve as an example and do not reflect items on Rolls-Royce's annual reports. You are not required to calculate this ratio.
Managing Dynamic Environments ADDITION
Effectively managing complex information technology projects is predominantly an exercise in precision and planning, but the best project managers know that adaptability is often the best way to mitigate the risk factors posed by dynamic environments. Adhering to a company's most recently issued mission statement is often the primary priority of top managers and executives, and with the fluid nature of modern organizational structures, outdated or obsolete projects reflecting prior mission statements may still be on the company's proverbial books. In this instance, competent managers are expected to identify projects which do not reflect the company's current mission statement, either adapting them to ensure compliance across all project parameters, or terminating the project's progress in an effective and efficient fashion. A recent article published by the prestigious International Journal of Project Management focused its analysis on the role that dynamic environments, which are typified by a…
Collyer, S. (2009) Project management approaches for dynamic environments. International Journal of Project Management, 27 (4), p.355-364. Available at: http://espace.uq.edu.au/eserv/UQ:175094/Project_Management.pdf [Accessed: 11th Feb 2013].
Schwalbe, K. (2011) Information technology project management. Boston: Course Technology
Corporation Transactions and Misrepresentation of Financial eports
Business law also called commercial law is a branch of civil law that governs business as well as, commercial transactions, and deals with both the private and public law. The branch created to ensure that, they are no exploitation and manipulation of people as well as rules and regulation in order to benefit some members of a business. This means that should one break or manipulate the rules and regulation in his favor. The or she must face the court in accordance with the law. With legal rights of all investors considered as an important element of the business law, we examine the board changes within the filling of the shareholder derivative lawsuits and might not be frivolous. Also, lack of highly competent employees within a business can lead to tremendous losses and to some extent closure of the business in accordance with…
Arlen, J. (1994). The Potentially Perverse Effects of Corporate Criminal Liability, the Journal of Legal Studies 23 (June), 833.
Becker, G.S. (1968). "Crime and Punishment: An Economic Approach." Journal of Political Economy 76 (March/April), 169-217.
Zingales, L. (2004). The Costs and Benefits of Financial Market Regulation, European Corporate Governance Institute working paper 21/2004
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
Corporate fraud as a dishonest activity for organizations that is considered as white collar crime has serious legal implications. Though it can be difficult to detect and catch, it is important to prevent it by creating effective and efficient policies for the organizations that ensure an efficient system of checks and balances exists in the organization for its physical and fiscal security. Whenever fraud happens in a company or organization, it often takes the form of hiding sources of revenue, overstating expenses or growth, or disguising payments made to individuals in the company. Often, fraudulent activities within the organization are complex in nature and have a gross impact on the financial nature of the organization. It is usually perpetrated by the company management and other employees are often unaware of these fraudulent activities (Mele, 2005).
Corporate fraud, as difficult as it is to prevent, often has a ripple effect whereby…
Bertrand, V. (2009). Organizational Isomorphism and Corruption: An Empirical Research in Russia. Journal of Business Ethics, 89(1), 59-76.
Federal Bureau of Investigation. (2014). Rooting out health care fraud is central to the well-being of both our citizens and the overall economy. Retrieved April, 2014, from http://www.fbi.gov/about-us/investigate/white_collar/health-care-fraud
Mele, D. (2005). Ethical Education in Accounting: Integrating Rules, Values and Virtues. Journal of Business Ethics, 57(1), 97-109.
Panda, J.K. (2006). Accounting & Finance For Management. New Delhi: Sarup Book Publishers Pvt. Limited.
Sarbanes-Oxley Act of 2002 in reducing fraudulent financial reporting
Introduction to Fraudulent Financial eporting
Available research on financial statement fraud relies mostly on anecdotal evidence (for example, Wells, 2001, 2002, 2004a, and 2004b; ezaee, 2003). This evidence offers advice on how mechanisms related to the fraud triangle can be curtailed. It leads to theoretical sense to reduce factors which lead to more instances of fraud. However, deterrence and established deterrence methods in place within organizations have not been examined in proper detail. Neither have the secondary issues which can influence a person's chance of committing financial statement fraud. But there are multiple researches where deterrence models have been tested on other types of fraud e.g. tax fraud, fraudulent reports of environmental violations etc. Generally speaking, a clear consensus regarding the level of effectiveness of prevention mechanisms, such as those stated in GDT, is not present. There are two key parts…
Abbott, L.J., S. Parker, and G.F. Peters. 2004. Audit committee characteristics and restatements. Auditing: A Journal of Practice & Theory 23 (1): 69-88.
AICPA: 2002, Statement on Auditing Standards (SAS) No. 99: Consideration of Fraud in a Financial Statement Audit (American Institute of Certi-ed Public Accountants, Durham).
Albrecht, W. And Albrecht, C. (2004). Fraud examination and prevention. South- Western, Mason Ohio.
Albrecht, W.S. And M.B. Romney. 1986. Red flagging management fraud: A validation. Advances in Accounting 3: 323-333.
Currently, auditors must labor over the writing of each section as though it must read perfectly when they submit it for the review by the senior auditors. Many of them have expressed frustration at the fact that they are not good writers. Consequently, they waste considerable amounts of time doing what they are worst at. Meanwhile, the senior auditors have similar problems synthesizing all of the individual sections together to compile a single report draft from the work provided by the auditors. Generally, the most laborious part of that chore for senior auditors is making the necessary changes to each of the individual sections first.
By contrast, the proposed changes to the audit report production process is designed to allow the senior auditors to reconcile any technical audit issues with the individual auditors while largely ignoring the writing of those sections. The senior auditor's primary responsibility is simply to confirm…
Cornell University Law School. (2011). U.S. Code Title V. Inspector General Act of
1978. Retrieved July 18, 2011 from the CULS Legal Information Institute website http://www.law.cornell.edu/uscode/html/uscode05a/usc_sup_05_5_10_sq2.html
Edwards, G., Wattenberg, M., and Lineberry, R. (2009). Government in America: People,
Politics, and Policy. New York, NY: Longman.
Enron could engage in their derivative trading strategy with no fear of government intervention because derivative trading was specifically exempted from government regulation. Due in part to a ruling by the Commodity Futures Trading Commission's (CFTC) chairwoman, Wendy Graham, derivatives remained free of regulatory oversight. Ms. Graham, wife of Texas senator Phil Graham, made this ruling 5 weeks before resigning as chairwoman of the CFTC and joining the Enron oard of Directors in 1993.
Derivative accounting is further complicated because there is no consistent way to fairly report their value and risk in a company's financial report. In 1998 Rule No. 133, "Accounting for Derivative Instruments and Hedging Activities" was developed by the Financial Accounting Standards oard (FAS), an independent agency that sets guidelines for corporate auditors. Rule 133 contains more than 800 pages, which further complicates its adoption and consistent interpretation by various companies. SFAS No. 133 was subsequently…
Dettmer, Jamie, and John Berlau. "Requiem for Enron: There's Enough Blame to Go around for the Collapse of the Energy Giant From Executives to Auditors to Financial Analysts to Congress." Insight on the News 7 Jan. 2002: 12+. Questia. 10 Mar. 2005 .
Folbre, Nancy. "Blowing the Whistle on Poverty Policy." Review of Social Economy 61.4 (2003): 479+. Questia. 10 Mar. 2005 .
Gup, Benton E., ed. Too Big to Fail: Policies and Practices in Government Bailouts / . Westport, CT: Praeger, 2003.
Hartgraves, Ai L., and George J. Benston. "The Evolving Accounting Standards for Special Purpose Entities and Consolidations." Accounting Horizons 16.3 (2002): 245+..
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.