Scandals In Accounting

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.

Eventually, those manipulating accounting activities affect company collapse. Once leadership has done unethical professional accounting behaviors, unethical acts become accepted. Employees have many reasons for remaining quiet. While Enron still have ethical internal rules, when leadership in Enron did not abide and did not provide corresponding example of employees to follow (Prentice 2003, p. 417). Which eventually make Enron’s become one of the largest corporate scandal frauds.

In conclusion, Waste Management’s fraudulent accounting practices ruined a great number of people financially; particularly shareholders and investors had lost more than 6 billion dollars. Scandals such as Waste Management shed light upon the flaws of the accounting profession at the time and conveyed a valuable lesson for our generation. As future auditors, we have to take significant action to ensure that such fraudulent practices would be detected before they have the chance to become as grandiose as the Waste Management scandal.

The streams of these revenues had been sustained through illegal dealings on the part of Enron and negotiations they did with other businesses. This scandal demonstrates the need of substantial reforms in corporate governance in the United States, and the ethical situation that should be dealt with in a business. Moreover, risk management failure that occurred in the Enron collapse is one of the outcomes where it does not accord with the company’s instability. The risks the Enron did to trade businesses, which they did not manage well and ended up destroying the firm. When the company does not have a correct alignment between the managements interests and the shareholders interest it could end up in chaos.

Financial statement fraud is one of the biggest types of fraud in today’s business world. The complexity and mechanism of financial statement fraud brought the attention of auditors and regulators. Financial scandals of Enron, WorldCom, Xerox, Tyco, Parmalat, Qwest, and Satam Computers increased the auditors’ responsibility in detecting and preventing fraudulent transactions. Corporate financial fraud had negative consequences for the market capitalization due to gigantic losses of investors. In addition, accounting scandals of early 2000th ruined auditors’ reputation and the public trust.

The Sarbanes-Oxley Act was implemented in 2002. This act was implemented as a result of a number of accounting scandals that resulted in the loss of billions of dollars to the investors. This act has eleven sections that range from additional company board responsibilities to criminal penalties. This act has made companies more accountable in their accounting practices. If a company knowingly falsifies, conceals, covers up, destroys ,or falsifies any documents to impede, obstruct or influence any investigation of violations of the law can be fined or imprisoned up to twenty years , or both.

However, sometimes it can be beneficial to one party to paint an inaccurate picture, or in other words, report false financial information. This is where accounting scandals come into play. Sometimes big companies use accounting reports to lie about their finances to keep making money. One very notable and infamous instance where such an accounting scandal occurred was with Enron from the late 1990s until the end of 2001. Background information Enron Corporation was born in 1985.

Compromising Financial Arrangements - Personal financial troubles drove the need for success as well as financial gratuities: Bernie Ebbers had obtained multiple loans to support other personal business ventures. He was in financial trouble and was not able to cover margin calls on his WorldCom stocks. He eventually persuaded the board to provide him with corporate loans. To drive loyalty, Bernie Ebbers in turn provided loans to the COO, Ron Beaumont. The CFO, Scott Sullivan also provided personal checks (bonus) to key managers involved in fraudulent accounting activities.

3, p. 964) The choices made in accounting masked the real issues causing bankruptcy to become the only alternative for Lehman Brothers. Reporting accurate financial statements will allow counterparties to make knowledgeable decisions, regardless of the outcome. In 2002 the Sarbanes-Oxley Act was enacted by Congress as a reaction to the large amount of business related scandals, it consists largely of new rules and regulations for public accountant firms in an attempt to reduce fraud in accounting practices. The consequences of disregarding this injunction could result in fine and imprisonment, or both.

“Accounting scandals are political and/or business scandals which arise with the disclosure of financial misdeeds by trusted executives of corporations or governments. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the cooperation of officials in other corporations or affiliates.” This misdeed adversely affects the reputation of the institutions of financial audit, the accounting standards, senior accountants and executives. Because of that the financial and accounting scandals considered of the most serious problems facing communities, because it spreads rapidly and extensively. The governments and the international financial standards are trying to keep everything under control, and to investigate the reasons behind these scandals, so it's not going to repeat again in the future, but with all of these investigations and control it’s still happening. The reasons are still not completed, because some of them happened due to corporate bad governance, and some because of the ethical morals of the CEO’s and CFO’s, and the list is too long.