In today’s day and age, there is a lot of news that is related to corporate accounting fraud as companies intentionally manipulate their financial statements to show a better picture of their financial health. The objective of financial reporting is to provide financial information about a company to its various stakeholders such as investors and creditors so that these stakeholders can make decisions accordingly. Companies can show a better image of their financial well being by providing misleading information. This can be done by omitting material information from the books or deceitful appropriation of assets such as inventory theft, payroll fraud, check forgery or embezzlement. Fraudulent financial reporting will have an effect on the This includes but is not limited to; check forgery, inventory theft, cash or check theft, payroll fraud or service theft. Another example of misappropriation of assets is when a company pays for goods or services that were not received or used. Embezzlement is a very common form of misappropriation where companies manipulate their accounts or create false invoices. An example of misappropriation of assets was discovered in 2008 and the victim organization was Fry’s Electronics. The Vice President of Merchandising and Operations, Ausaf Umar Siddiqui had set up a fake company that received illegal kickbacks. Siddiqui embezzled $65.6 million to pay off his gambling debts. Embezzlement of money from a company can understate cash and show a false picture to the creditors and investors. This can lead them to make decisions on misrepresented information. Another example of misappropriation of assets was of a hedge-fund manager, Philip A. Falcone who borrowed $113.2 million from investors from a hedge fund company (Harbinger Capital) and he used that money fraudulently to pay off his personal taxes. Instead of using the investor’s money for the intended purpose, which was to build a wireless phone network, he deceived them by using the money without their knowledge to pay off his taxes. The company had to file for bankruptcy as it had $23 billion in losses and withdrawals and it could not pay back The company concealed huge debts off its balance sheet, which resulted in overstating earnings. Due to an understatement of debts, the company was considered bankrupt in 2001. Shareholders lost $74 billion and a lot of jobs were lost because of the bankruptcy. The share prices of Enron started falling in 2000 and in 2001 the company revealed a huge loss. Even after all this, the company’s executives told the investors that the stock was just undervalued and they wanted their investors to keep on investing. The investors lost trust in the company as stock prices decreased, which led the company to file bankruptcy in December 2001. This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such
Another reason for Enron’s bankruptcy was the unnecessary personal spending by corporate managers. It was a direct loss to the company’s shareholders. In the later stages before its bankruptcy, the luxuries were paid from the company’s borrowing, as it had no real profits. Therefore in the later stages, the creditors were at a loss rather than its shareholders.
But, it is still uncertain of when the full restitution amount will be paid off (Con Artists Hall of Infamy). Policy Securities Fraud: Securities fraud, also known as investor fraud or investment fraud, is a deceiving way of manipulation in the stock markets, which persuades potential investors to purchase or sale due to false information, usually resulting in loss of investments. Securities fraud may also involve direct theft from those investing through embezzlement, the theft or misuse of funds placed in one’s trust (Google), or stock manipulation, which is a premeditated attempt to meddle with... ... middle of paper ... ... they lost, and much less their stress and hardship they might have endured due to their unfortunate loss.
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).
The term “fraud” is commonly used to describe the use of deception to deprive, disadvantage or cause loss to another person or party. This can include theft, the misuse of funds or other resources, or more complicated crimes such as false accounting and the supply of false information. This case study of Mountain State Sporting Goods is an excellent example of individuals acting on the opportunity to financial benefit by committing what they thought was harmless adjustments, but in reality was fraud. In this case study there are is just so much wrong with this company and how it operates. We noticed multiple areas of concern before even seeing the financial statements and my concerns were confirmed upon further investigation.
The effects of a declining economy predominantly affect the inherent risk of the audit risk model because of the attraction to either inflate revenues or under-report expenses to keep the company in a positive financial standing. Many high-tech company’s experienced a devastating blow to their financials after the technology bubble burst in 2000, which was marked by two large fraud scandals. First, was Lucent Technologies Inc, a communication equipment provider, which began to inflate revenue of $1.2 billion after management became overwhelmed by the significant decrease in telecommunication equipment spending (Belson, 2004 para. 1). The adage of the adage. Included in the scheme was $125 of false sales to Winstar Communications (Belson, 2004 para. 1).
Enron was in trouble because of something that almost every major corporation during this time was guilty of. They inflated their profits. Things weren't looking good for them at the end of the 2001-year, so they made a common move and they restated their profits for the past four years. If this had worked to their like they could have gotten away with hiding millions of dollars in debt. That completely admitted that they had inflated their profits by hiding debt in confusing partner agreements. Enron could not deal with their debt so they did the only thing that was left to do, they filed for chapter 11 bankruptcy. This went down as one of the largest companies to file for bankruptcy in the history of the United States. In just three months their share price dropped from $95 to below $1.
A growing trend in our society today is corporate tax evasion. It has become increasing more common for corporations to pay no or little income tax, and in some cases actually receive money back from the government. It is illegal and therefore deviant by that definition. Corporate tax evasion (using borderline legal means) is widespread. White-collar crime is a term that is usually applied to crimes associated with business that do not involve violence or bodily injury to another person. Corporate tax evasion falls into the category of white collar crime.
Embezzlement is financial fraud and is often executed in a way that is premeditated, systematic and/or methodical with the explicit intent to conceal the activities from other individuals, usually because it is being done without the other individuals’ knowledge or consent. Embezzlement “often involves the trusted individual embezzling only a small proportion of the total of the funds that he/she control in an attempt to minimize the risk of the detection of the misallocation of the funds or resources. When successful, embezzlements continue for years without detection. It is often only when a relatively large proportion of the funds are needed at one time or they are called upon for another use that the fraud is discovered (Wikipedia). This essay will present John F. Doorly’s and Minnie Mangum’s schemes as examples of embezzlement and discuss preventive measures.
Accounting fraud refers to fraud that is committed by a company by maintaining false information about the sales and income in the company books, when overstating the company's assets or profits, when a company is actually undergoing a loss. These fraudulent records are then used to seek investment in the company's bond or security issues. By showing these false entries, the company attempts to apply fraudulent loan applications as a final attempt to save the company by obtaining more money from bankruptcy. Accounting frauds is actually done to hide the company’s actual financial issues.
Embezzlement is described in the book Criminology Today by Frank Schmalleger as, ”The unlawful misappropriation for personal use of money, property or other thing of value entrusted to the offender’s care, custody, or control”. One well known embezzlement case was discovered in 2008, it was perpetrated by Ausaf Umar Siddiqui a Pakistani American, better known a...
Enron was on the of the most successful and innovative companies throughout the 1990s. In October of 2001, Enron admitted that its income had been vastly overstated; and its equity value was actually a couple of billion dollars less than was stated on its income statement (The Fall of Enron, 2016). Enron was forced to declare bankruptcy on December 2, 2001. The primary reasons behind the scandal at Enron was the negligence of Enron’s auditing group Arthur Andersen who helped the company to continually perpetrate the fraud (The Fall of Enron, 2016). The Enron collapse had a huge effect on present accounting regulations and rules.
The principle territory we are planning to address is accounting fraud and how it could impact an organization by answering, the who, what, when and how. Its goal is to increase the awareness of accounting fraud and fraud counteraction. The intriguing thing about accounting fraud is that little disclosure as a rule usually leads to an enormous increase in fraud. A number of categories and sub-categories can be divided up for fraud.
Corporate wrongdoing in the workplace can be ranges from theft by rank and also file workers to corporate pillaging by senior executives. Aside from the apparent pilfering, common robbery by employees at all intensity including by working fraudulent expenses, diverting cash and stealing goods and services. ("Corporate Wrongdoing", 2010)
Financial statement fraud is very detrimental to the company because it can lead to several consequences including: a) the need for investigation; b) remediation efforts; c) negative market reactions; and d) examination by researchers (Trompeter, Carpenter, Desai, Jones, K. L., & Riley Jr, 2012). Moreover, Tugas, (2012) argue that financial accounting fraud have place the accounting profession in bad light. Even, Beasley, Carcello, and Hermanson (1999) explain “that consequences of financial statement fraud to the company often include bankruptcy, significant changes in ownership, and delisting by national exchanges.”
By placing themselves in the same business area and mixing businesses placed the auditing company in a compromising position. In addition to that, once the SEC started their investigations on Enron Andersen knew that they had not been forthcoming and truthful with their audits of the financial statements of Enron and they decided to shred as much evidence as they could so that when the gavel came down they would not be reprimanded as severely as they should be. According to Thomas Enron later terminated Andersen as their auditor reason being for “document destruction and lack of guidance on accounting policy”. Just as Enron knew the shortcuts that they were taking were morally and professionally wrong, as the reader, it is hard to believe that the company was unaware that their own auditing company had destroyed auditing records of the company’s financial statements. In the end of 2002 the Andersen company was destroyed due to their lack of business morality and all of Enron employees were left without jobs, savings and benefits. Enron’s collapse afforded other businesses in the same line of work to pick up some clientele that was lost during the scandal, however the scandal also made clients more cognizant of the business relationships they started and caused them to pay close attention to the accounting firms that