Deceptive Accounting
1.Describe the legal and ethical issues surrounding Andersen’s auditing of companies accused of accounting improprieties.
In this case study, in my opinion, the causes of that the Andersen’s auditing of companies accused of accounting improprieties, it’s has a main factor. Because Athur Andersen do not think about the company who is to cooperate whit it is like Athur Andersen to make deceptive accounting. These four real cases to show us how they operate the deceptive accounting.
First point, “Sunbeam.”
1997 sunlight company (SUNBEAM) the bankruptcy case, the sunlight company is referred to the forge sales volume, the profit and the expenditure. Under its partner discrete sampling's premise, Andersen had still approved the sunlight company to have the questionable point financial reporting. Finally, Sunlight Company suspends pay. Claim request which proposed regarding the American negotiable securities and the transaction committee, Andersen strong against. Finally, to accuse in the situation which shows neither approval nor disapproval, Andersen and the shareholder out of court settlement, compensates $110million dollars.
Second point, “waste management.”
Waste Management the company to make a false report gathers shares the desk, Waste Management Company’s financial reporting 1992 to 1996 income false report to amount to $1.4 billion dollars to the company. The American negotiable securities and the transaction committee discovered that Andersen's report of audit is not extremely real, and has the misleading function. Rules it to be a suspect the improper occupation operation finally. Andersen has accepted this ruling, and has paid damages $7 million dollars civil fines, but to it whether should say nothing pro or con responsible. The Andersen also agreement is $220 million dollar out of court settlement payment partial funds, but had not acknowledged that oneself have any error.
Third point is “Baptist Foundation of Arizona”.
BFA invested heavily in real estate, a more speculative investment strategy than other Baptist foundations in the state traditionally used. Profits from investments were supposed to be used to fund the churches’ ministries and numerous charitable causes. Problems began when the real estate market in Arizona suffered a downturn, and BFA’s management came under pressure to show a profit.
Fourth point is the most important point, “Enron”.
Andersen in 1985 established the beginning from the Enron to make the audit for it, has done the entire 16 years. Besides the pure audit, Andersen also provides the management audit and the advisory service. In the mid-1990s, Andersen with signed a subsidiary agreement safely, Andersen has assumed full responsibility the management audit work safely.
Conflict of interest. So this section could be helpful in catching the fraudulent activities, since Enron wouldn’t be able to hire Andersen for audit purposes. More over the audit partner responsible for reviewing the audit must rotate every five years. This will prevent ongoing fraud from occurring for more than a few years.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
With every business activity come opportunities for fraudulent behavior which leads to a greater demand for auditors with unscathed ethics. Nowadays, auditors are faced with a multitude of ethical issues, and it is even more problematic when the auditors fail to adhere to the standards of professional conducts as prescribed by the American Institute of Certified Public Accountants (AICPA). The objective of this paper is to analyze the auditors’ compliance with the code of professional conduct in the way it relates to the effectiveness of their audits.
His project manager, Oliver Freeman, changed the analysis. that Daniel submitted in order to get a clear opinion so that their firm may get an exclusive account. The. My decision was to report the incident so that the correct information would be supplied in the audit documents. The decision I chose may cost Baker Greenleaf to lose an important client and Oliver Freeman to lose his job, but it will uphold the integrity of the accounting profession and keep Daniel Potter safe from the liability of providing false information.
According to the Baker Botts investigation, the company started maneuvering its gains and losses in early 2001 with the concurrence of its auditor Arthur Andersen — Baker Botts was the law firm that the board hired to investigate the accounting fraud (Barta, McKinnon and Zuckerman). By the fall of 2001, Freddie Mac started using other accounting tools to smooth out future earnings and an Arthur Andersen partner objected but gave an unqualified opinion on their financial statements (2002 Annual Report). The next year the company fired Arthur Andersen and brought in PricewaterhouseCoopers as the auditor. PricewaterhouseCoopers refused to certify the company’s book, prompting the board to contract Baker Botts to investigate the company’s books in January
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
Accounting ethics has been difficult to control as accountants and auditors must keep in mind the interest of the public while that they remain employed by the company they are auditing. The accountants should take into account how to best apply accounting standards when company faces issues related financial loss. The role of accountant is crucial to society. They serve as financial reporters to owe their primary constraint to public interest. The information provided is critical in aiding managers, investors and others in making crucial economic decisions. An accountant is responsible for any fraudulent financial reporting. Some examples of fraudulent reporting are:
Corporate governance changed drastically after the case of Andersen Auditors, Enron’s auditing service showed that they contributed to the scandal. Andersen was originally founded in 1913, and by taking tough stands against clients, quickly gained a national reputation as a reliable keeper of the people’s trust (Beasley, 2003). Andersen provided auditing statements with a ‘clean’ approval stamp from 1997 to 2001, but was found guilty of obstructing justice by shredding evidence relating to the Enron scandal on the 15th June 2002. It agrees to cease auditing public companies by 31 August (BBC News, 2002).
The main ethical issue with the Enron scandal is that Enron allowed legal loopholes to supersede ethical principles (Bowen & Heath, 2005). Enron used legal principles to justify what they were doing instead of acknowledging that the accounting processes they were using were unethical. Another one of the ethical issues is that Enron faced was that
ABSTRACT: The quantity of accounting fraud cases keeps on rising. Fraud is a consistent thing that will reliably be around, and in a bigger number of routes than just a single. An extensive apportionment of organizations out there fighting fraud, either from within the organization, or from outside the organization. Knowing how to manage this is essential for an organization to be productive over an extended period of time. The investigation regarding the matter of accounting fraud will utilize sources from the web and the DeVry School Library.
Financial reporting is an example of an ethical problem for an organization or business. Many busin...
The fraudulent financial reporting is the information in financial statement that will misleading, omission, and misrepresenting the users in order to attract potential investors and fulfil the shareholder’s expectation wealth. The company may has intended to use wrongly the accounting principle which related to classification, method of depreciation,
This paper discusses the role of ethics in corporate governance. I seek to show the application of moral and ethical principles in corporate governance. Ethics is a topic that has generated a lot of interest in the last decade especially after high profile scandals. The failures of prominent companies such as WorldCom, Enron, Merrill lynch and Martha Stewart portrays the lack of corporate ethics. The failure of such business has seen an increased pressure to incorporate ethics in corporate governance. The result of corporate scandals has been eroding investor and public confidence. The entire economic system has experienced some form of stress from loss of capital, a falling stock market and business failures.
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.
The complete destruction of companies including Arthur Andersen, HealthSouth, and Enron, revealed a significant weakness in the United States audit system. The significant weakness is the failure to deliver true independence between the auditors and their clients. In each of these companies there was deviation from professional rules of conduct resulting from the pressures of clients placed upon their auditors (Goldman, and Barlev 857-859). Over the years, client and auditor relationships were intertwined tightly putting aside the unbiased function of auditors. Auditor careers depended on the success of their client (Kaplan 363-383). Auditors found themselves in situations that put their profession in a questionable time driving them to compromise their ethics, professionalism, objectivity, and their independence from the company. A vital trust relationship role for independent auditors has been woven in society and this role is essential for the effective functioning of the financial economic system (Guiral, Rogers, Ruiz, and Gonzalo 155-166). However, the financial world has lost confidence in the trustworthiness of auditor firms. There are three potential threats to auditor independence: executives hiring and firing auditors, auditors taking positions the client instead of the unbiased place, and auditors providing non audit services to clients (Moore, Tetlock, Tanlu, and Bazerman 10-29).