The Lehman Brothers, an investment banking firm filed for bankruptcy in September of 2008 due to poor financial choices. The company made many bad decisions because of their greed and unethical decision to manipulate the books. The lack of success by the Lehman Brothers shows that it is imperative to be self-evident with financial reporting. The bankruptcy shows that they failed to use factual figures by disguising their actual financial position. The analysis of the Lehman Brothers will show the acts of unethical financial reporting and the effect it had on this financial banking firm.
"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business. As these things come out, it just continues to build up"(CBS MarketWatch, Hancock). The memories of the Frauds at Enron and WorldCom still haunt many investors. There have been many accounting scandals in the United States history. The Enron and the WorldCom accounting fraud affected thousands of people and it caused many changes in the rules and regulation of the corporate world.
This section protects information such as payroll data and account history. The section on confidentiality is segmented into specific statements to ensure that the privacy of the client is protected. Section 140.5 states that “a professional accountant shall take reasonable steps to ensure that staff under the professional accountant’s control and persons from whom advice and assistance is obtained respect the professional accountant’s duty of confidentiality.” (CIMA Code of Ethics) This particular statement is to make sure that anyone working for an accountant must pertain to the same confidentiality as the accountant does. For example, a receptionist who is filing papers must not speak of what he or she has seen in the accountant’s pap... ... middle of paper ... ...code of ethics, there is no free range for accountants in their profession therefore leaving no room for mistakes. As an accountant, having the reputation of good confidentiality can keep the business in the competitive market.
The EITF guidelines are not standards, but they hav... ... middle of paper ... ...ased on trustworthy numbers. Enron’s accounting for its’ stock that was issued to and held by the SPE’s also played a large part in its “fraud”. US GAAP, as structured and administered by the SEC, the FASB, and the AICPA is at least partially responsible for the Enron disaster. Enron and its outside counsel and auditor felt comfortable in following the specified accounting requirements for consolidation of SPEs. The SEC had the responsibility and opportunity to change these rules to reflect the known fact that corporations were using this vehicle to keep liabilities off their balance sheets, although the sponsoring corporations were substantially liable for the SPE’s obligations.
With a desire to make their company appear better than it actually is, there has been a constant issue of corruption and fraud in accounting. Individuals who practice in fraudulent activities often seek to enrich themselves, establish a financial presence, or even gain respect from others. Not only do these scandals cause the companies to fall into bankruptcy, but also leads to innocent people losing their entire life savings. Over the past decade, numerous frauds have been discovered worldwide. Some of those frauds include Enron, WorldCom, Cendant, Adelphia, Parmalat, Royal Ahold, Vivendi, and SK Global.
Fraud, Façade or Sham means that the courts will inspect from behind of the corporation where the corporation was found purely to escape a legally liability, or to let someone to do something which he is not allowed to do by individual. It is important for clearly the intention of the individual. When the corporate form has been used willingly, it will evade the existing liability which has upshot in the vei... ... middle of paper ... ...t the veil could only be lifted on a single economic unit. This was the true structure of a contract, document or enactment. And this can allow lift the veil on occasion, it is evidently very limited in the area.
Independence has always been associated with integrity and objectivity. Since faults on financial statements may be the result of either a honest mistake or a lack of integrity it is imperative to associate the notion of independence with the objectivity and integrity. As part of the requirements by the Code of ethics, CPA should avoid any relationships that may result in the CPA's becoming dependent on the particular client. Such relationships include financial interests and client management. It is very important that the opinion of the CPA reflects the results of operating decisions taken by the client and not any underlying ideas which may be the case if a CPA takes part in the decision making process of the company.
However, financial difficulties was not the root cause of these company’s downfall. In most cases, the senior executive officers attempted to pass the blame onto the accounting and legal communities. While there was enough blame to throw around, the SOX was established in an attempt to prevent future unethical behavior by individuals and companies. The SOX formulated set provisions under the Public Company Accounting Oversight Board (PCAOB), that companies are required to follow (Schroeder et al, 2011); 1. Public Company Accounting Oversight Board (PCAOB), a nonprofit agency established to oversee the audit community in order to protect investors’ interest, by ensuring the accuracy of independent audit reports.
The external auditor may be not discover the whole fraud information, but if they have the responsibility, they will found the company’s fraud is not difficult. The public think the auditor has responsibility to detect the financial statements’ fraud and to do the report to disclose the fraud, the auditor has responsibility to do this , but the auditor also has the other responsibility, not only detect and report the material fraud. The auditor responsibility to detect the material fraud just one part of the auditor responsibility. The auditor professional guidance has four parts. The auditor’s responsibility for the detection of fraud, the auditor’s responsibility for reporting fraud to management, the auditor’s responsibility for reporting fraud to shareholders and the auditor’s responsibility for reporting fraud to third parties.
Scandals of organizations like Adelphia, Peregrine Systems, Tyco International, and Enron among others were great primers to the need for a law regulating the financial accounting profession (Orin, 2008). This paper uses Sarbanes-Oxley Act (SOX) to delineate the main aspects of the regulatory environment for corporations aimed at protecting the public from fraud. Moreover, it will evaluate the effectiveness of SOX in taming future frauds. Financial fraud in the context of SOX is used to denote financial reporting that omits crucial information or misreports the financial stand of an organization to deliberately portray a positive outlook of the organization (Schlesinger, 2002; SOX 2004). For example, accountants might decide to classify financial information as nonfinancial with the intent of masking an accrued loss.