Due to embezzlement a company can incur losses with the continual movement of money in employee’s pockets. Inflation on the other hand, is not bad in the short-term for businesses, but effects society the most. If businesses are ever caught practicing illegal activities, their reputation will be at stake with consumers, potential investors, partners, etc. The most important thing a business should have with its clients is trust and without it a business is likely to fail. Companies might see the need to inflate their inventory to recover lost resources and in turn can provoke other companies to outdo them.
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.” The concern for preventing fraud is increased because the negative impact of fraud have also increased over the years. Moreover, financial statements fraud are likely the most worrying because it causing decreasing company performance (Kassem & Higson, 2012; Aghghaleh, Mohamed, & Rahmat, 2016). Fraud is a topic that gets significant attention from regulators, auditors, and the public (Kassem & Higson, 2012).
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.
What’s more, it may also have the management buyout by the other army or company, the value of assets will be underestimated so the entrepreneur still loses under the detrimental context. More important is that failure can cause the potential loss. Fail entrepreneurial activity negatively affects the reputation, which can be harmful to the company’s sustainability in the long run. For the bankers, considering the credit risk is one of the most critical factors (Burns 2010), it can reflect the past record of the entrepreneurship, such as credibility, financial statement and the previous sale, etc. Since failure is exposed, the un... ... middle of paper ... ...nturing.
3. Pros for the Volcker rule The core idea of Volcker rule is to make banks in the U.S change mixed management to segregate management, in other words, Volcker rule tends to separate commercial banks and investment banks. This may bring harm to some people’s benefits; especially the beneficiary in Wall Street, but some people can still get benefits from Volcker rule and support this in different ways. 3.1 Government and Taxpayers In a country with excellent risk management, mixed operation could bring improvement to the whole financial industry; conversely, if a country’s risk management may not perform very well; mixed operation may bring chaos to this country’s financial sector. What is worse, it may bring much harm to the country and even the world’s economy.
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 actuality, the crime of embezzlement and white-collar crime in general impact the society around them heavily. When an organization suffers from fraudulent actions such as embezzlements, assuming the company does not shut down it must make up for lost profits. Unfortunately for the consumer that usually means upping prices of their good. If the previous statement is not feasible then the company must cut hours, or in severe cases, cut employees all together. Innocent employees could be unable to pay bills, loans, and credit scores could be ruined.
On the other hand, the internal threat could really leave a huge impact in the business. External threat, usually are more open or public. Preventing this external threat are highly possible. External threat consist of, the loss of control over your management, hidden cost, argument of confidentiality, quality problems, tied to the financial status of another company, images of your company, general security issues in IS, and hackers. The loss of control over you management, where when you agreed to sign a contract, to outsourced certain part of your department, it’s more likely, you give the control of that department over the outsourced company.
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.
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. These kinds of scandals usually happened by manipulating or falsification the balance sheet of the company to express a preferable performance to the shareholders. This might include hiding or removing some transactions, unreported costs, fake accounting entries, keeping debts off the balance sheet... etc.. These actions lead the company to bankruptcy and a big financial or accounting scandal afterwards. This paper is going to discuss the “Vivendi Universal Accounting Scandal”.