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.
A clear example of accounting fraud is the act of purposely overpricing a company's assets in order to increment its share price. Another example is due to financial problems, saving company from collapsing. One of the biggest accounting frauds in history occurred during the Enron scandal in 2001.
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:
• Manipulation, falsification (forgery), or alteration of accounting records or documents from which the financial statements are prepared.
• Misrepresentation i...
... middle of paper ...
... inventory turnover was found to be very low. The low inventory turnover ratio was an indicator of inadequacy, since inventory usually has a rate of return of zero (Inventory Turnover Ratio Interpretation, 2009). It also implied either poor sales or excess inventory. A low turnover rate indicated poor liquidity, convincible overstocking, and obsolescence, but it would have also reflected a planned inventory build-up in the case of material shortages or in anticipation of rapidly rising prices. (Inventory Turnover Ratio Interpretation, 2009) And a rapid and unexplained rise in the number of sales per day in receivables in addition to growing inventories to cover the shortage was noted. The interviewee (Public Accountant) could smell something suspicious which led him for more detailed procedures and proactive investigation at the end of which a fraud was detected.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- The stock markets immediately responded to the restatement and the stock price dropped to less than $10 a share (Thomas, 2002). Enron and Dynegy announced the merger agreement of $7.8 billion which would have created Dynegy Corp, where 64% owned by Dynegy and 36% owned by Enron on November 9, 2001 (Enron Fast Facts, 2015). Dynegy terminated merger agreement with Enron on November 28, 2001 due to Enron’s lack of full disclosure of its off-balance-sheet debt. This immediately downgraded Enron’s rating to junk status (Enron Fast Facts, 2015).... [tags: Audit, Enron, Accounting scandals, Auditing]
1255 words (3.6 pages)
- The Enron Corporation is notorious among accounting scandals and university case studies. At its time, Enron was a staple of a Fortune 500 company, and was perhaps most importantly, any investor’s dream. The company had originally entered the energy industry via a merger between Horthern Natural Gas Company and Houston Natural Gas, and eventually became one of the world’s largest electricity firms; they even went so far as to branch into communications, paper and pulp, natural gas, and other products that seem both unusual and even counterproductive to their business model.... [tags: Enron, Jeffrey Skilling, Kenneth Lay]
1122 words (3.2 pages)
- Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars.... [tags: Business ethics, Enron, Ethics]
1096 words (3.1 pages)
- ... In my opinion, politics played a huge role in Enron, whether it was inside the company or outside the company. First I believe the government should have kept an eye on Enron. They should have question on how a company was able to grow so fast in such a short time. When a company continues to grow year after year and not by a little, but by millions of dollars that should raise questions. While inside the company, if everyone is making money on stock options they usually do not question it. I believe people were aware of what was happening but did not care about the long run, instead they only cared about the present.... [tags: Enron, Kenneth Lay, Jeffrey Skilling, Fraud]
884 words (2.5 pages)
- Introduction The Houston based commodities, energy and service corporation Enron was involved in one of the biggest fraud cases in the United States of America. Underlying the fraud was the deception of reports and statements that gave a very inaccurate and misleading view about the company. The Organisation, Time and Place Enron Initiated as an interstate pipeline company through the merger of Houston Natural Gas and Omaha-based InterNorth in 1985.(The rise and fall of Enron: a brief history, 2006) With this merge the previous CEO of Houston Natural Gas, Kenneth Lay, advanced and became the new CEO of Enron.... [tags: Enron, Arthur Andersen, Accounting scandals]
1276 words (3.6 pages)
- 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.... [tags: Enron, Fraud, Accounting scandals, Balance sheet]
1084 words (3.1 pages)
- The key factors or critical issues presented in the case are the rises of Enron, which originally established in Houston Texas, by Kenneth Lay. He was one of the highest paid Chief Executive Officers in 1999. The organization developed the first gas pipeline company that was globally known worldwide. The company covers the world’s leading electricity innovations, personnel management, and risk management processes. Also, to further studies the company 's dramatic fall involved the factor of the company, which forced the business to file bankruptcy.... [tags: Enron, Jeffrey Skilling, Ethics, Kenneth Lay]
1039 words (3 pages)
- Enron and Arthur Anderson were both giants in their own industry. Enron, a Texas based company in the energy trading business, was expanding rapidly in both domestic and global markets. Arthur Anderson, LLC. (Anderson), based out of Chicago, was well established as one of the big five accounting firms. But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as “creative” accounting methods, this resulted in them posting record breaking earnings.... [tags: Accounting]
1550 words (4.4 pages)
- Enron, one of our nation’s greatest success stories, was riddled with fraud, insider trading and a complex account scheme amongst other things. The board of directors set a standard of business that honored the values of respect, integrity, and excellence. The issue was, the company didn’t follow what it preached and corruption trickled down the corporate ladder. Enron set such a high level of intense competition that it used a system referred to as “rank and yank” which promotes employees to compete not only with rival companies but also with each other.... [tags: Enron, Business ethics, Ethics, Kenneth Lay]
1177 words (3.4 pages)
- The fall of the colossal entity called Enron has forever changed the level of trust that the American public holds for large corporations. The wake of devastation caused by this and other recent corporate financial scandals has brought about a web of new reforms and regulations such as the Sarbanes-Oxley Act, which was signed into law on July 30th, 2002. We are forced to ask ourselves if it will happen again. This essay will examine the collapse of Enron and detail the main causes behind this embarrassing stain of American history.... [tags: Accounting Scandal Finance]
977 words (2.8 pages)