In the early 2000s, fraud was a major issue that was becoming more and more frequent. In an attempt to dissuade frauds, the government passed the Sarbanes Oxley Act, created the Public Company Accounting Oversight Board, and issued the Statement of Auditing Standards 99. These costly reforms sought to improve financial disclosures from organizations, establish audit standards, inspect accounting firms, and enforce compliance with all rules highlighted by the Sarbanes-Oxley Act. However, fraud occurrence has not been impacted. Fraud, at its core, has three factors that are present in every case. These three factors are shown in Donald Cressey’s fraud triangle as opportunity, incentive, and rationalization. Fraudsters must have the opportunity to commit a fraud. It could be possible due to poor or effective internal controls where a manager has the ability to override. A fraudster must have an incentive to commit a fraud. Incentives could include meeting analysts projections and stockholder expectations, reaching goals for company performance bonuses, raising stock price for personal stock options in the company. The governmental reforms of the early 2000s attempted to limit frauds through these two aspects of the fraud triangle. Since frauds still continue to occur, the rationalization aspect may be the largest part of the problem.
Written by Douglas M. Boyle, CMA, CPA, James F. Boyle, CPA, and Daniel P. Mahoney, CPA, CFE, “Avoiding the Fraud Mind-Set” outlines the following learning objectives that address the rationalization element of the fraud triangle: develop an ability to recognize your own human tendency toward rationalization, understand that fraudsters are “real people”, realize the psychological cost of “getting away ...
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...lose personally with Jeffrey Skilling, Enron’s CEO at the time. Upon Enron’s eventual bankruptcy, Skilling noted that Baxter was heartbroken by what had happened to Enron and all of the employees who lost their jobs and life savings. He was sued personally and former employees along with the media publicly slandered his name. Knowing his role in the fraud, Baxter could not take it anymore. Seven months after his resignation from Enron, Baxter was found dead in his Mercedes because of a self-inflicted gunshot wound to his head. He left behind a suicide note to his wife reading:
“Carol,
I am so sorry for this. I feel I just can 't go on. I have always tried to do the right thing but where there was once great pride now it 's gone. I love you and the children so much. I just can 't be any good to you or myself. The pain is overwhelming.
Please try to forgive me.
Cliff”
Financial statement fraud makes up a marginal (less than 10%) percentage of occupational fraud cases, but the median loss is significantly higher at $975,000. A fraud scheme occurring over a significant amount of time will likely result in much higher median losses. For example, a fraud scheme lasting more than five years could result in median losses of $850,000. Larger companies are more likely able to implement strong anti-fraud controls due to size and finances, therefore, smaller companies become more susceptible to fraud schemes due to lack of proper preventive controls. Preventive controls include: implementing internal controls, continually updating the company’s Code of Conduct, rotating jobs/duties, and
Internal controls are in place to protect entities against theft from dishonest workers and outside predators. They are also an accurate series of checks and balances and are in place to find discrepancies.
Dodd-Frank and Sarbanes-Oxley Acts are important legislations in the corporate world because of their link to public and privately held companies. Sarbanes-Oxley Act was enacted to enhance transparency and accountability in publicly traded companies. On the contrary, Dodd-Frank Act was enacted to disentangle the confused web of financial service company valuations. Actually, these valuations are usually hidden by complex and unclear financial instruments. The introduction of Sarbanes-Oxley Act was fueled by recent incidents of accounting frauds by top executives of major corporations such as Enron. In contrast, Dodd-Frank Act was enacted as a response to the tendency by banks, insurance companies, hedge funds, rating agencies, and accounting companies to serve up harmful offer of ruined assets and liabilities brought by systemic non-disclosure (Anand, 2011, p.1). While these regulations have some similarities and differences, they have a strong relationship with the financial markets.
In July of 2002, Congress swiftly passed the Public Company Accounting Reform and Investors Protection Act at the time when corporations like Arthur Anderson, Enron and WorldCom fell due to fraudulent accounting practices and bad internal control. This bill, sponsored by Mike Oxley (R-OH) and Paul Sarbanes (D-MD), became known as Sarbanes-Oxley Act (SOX).It sought to restore public confidence in publicly traded companies and their accounting practices, though the companies listed above were prosecuted on laws that were already in place before SOX. Many studies have examined the effects of SOX on corporations in the past eleven years. The benefits are hard to quantify and the cost are rather hard to estimate including the effect on market efficiency.
After Cliff Baxter committed suicide, a note was found. In the note to his family he wrote with shame of how he once took great pride in doing the right thing. He wrote that the pride was gone and he felt he could be of no use to his family. He expressed love and asked for his family's forgiveness. I believe the film tried to make Baxter look like the initial voice of morality that was being moulded into the “corporate bad guy”. Baxter committed suicide because he felt as if he was becoming greedy, dishonest and going against his morals. Unlike the other Enron elites, he couldn’t deal with the person he had become and his guilt took over his thoughts and he could no longer continue on.
Throughout history there have been many white collar crimes. These crimes are defined as non-violent and financial-based crimes that are full ranges of fraud committed by business and government professionals. These crimes are not victimless nor unnoticed. A single scandal can destroy a company and can lose investors millions of dollars. Today, fraud schemes are more sophisticated than ever, and through studying: Enron, LIBOR, Albert Wiggan and Chase National Bank, Lehman Brothers and Madoff, we find how the culprits started there deception, the aftermath of the scandal and what our country has done to prevent future scandals.
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
[17] Robert K. Elliot, CPA and John J. Willingham PhD, CPA, Management Fraud: Detection and Deterrence. New York: Petrocelli Books, Inc., 1980, pp. vii.
Hanson, J. R. (n.d.). Fraud or confusion? RDH Magazine, 19(4). Retrieved 3 15, 2014, from http://www.rdhmag.com/articles/print/volume-19/issue-4/feature/fraud-or-confusion.html
Weld, L. G., Bergevin, P. M., & Magrath, L. (2004). Anatomy of a financial fraud. The CPA
Giroux, G. (Winter 2008). What went wrong? Accounting fraud and lessons from the recent scandals. Social Research, 75, 4. p.1205 (34). Retrieved June 16, 2011, from Academic OneFile via Gale:
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.
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.
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.
For those who do not know what fraud is, it’s basically deception by showing people what they want to see. In business it’s the same concept, but in a larger scale by means of manipulating figures that will be shown to shareholders and investors. Before Sarbanes Oxley Act there was “Enron Corporation”, a fortune 500 company that managed to falsify their statements claiming revenues over 101 billion in a span of 15 years. In order for us to understand how this corporation managed to deceive the public for so long, the documentary or movie “Smartest Guys in the Room” goes into depth by providing viewers with first-hand information from people that worked close with or for “Enron”.