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Introduction to accounting standards
Financial reporting fraud case studies
Introduction to accounting standards
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In the present day competitive business environment, it is vital that companies operate in a manner where they could be able to assure long term business sustainability and competitive advantage over the rivals in a particular marketplace. With the changing context of the business over the years, companies need to offer services and/or products in alignment with the needs to the market or the customers. Organisations are also identified to face with numerous challenges, which further encourage them to use effective operational approaches to avoid complexities in business. Additionally, in order to ensure continuous growth in the business, organisations also need to ensure considerable control over their activities with specific regard to the …show more content…
Fraudulent financial reporting within any particular business can lead to or affect the overall efficacy of a business in the long run. Understanding gained from the past instances with regard to fraudulent financial reporting affirmed that such activities could lead to complete downfall of a business. The cases of Enron and WorldCom are some of the most notable instances that can be bring into notice in this context.
Fraudulent Financial
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Likewise, non-adherence to the ethical and legal principles of accounting can influence the business negatively. Notably, companies that are involved with fraudulent financial reporting are on the receiving end of direct impact of such practices in both the short and the long run. The impact may not only be in the form of financial loss but it can be in the form of reputational damage also. Notably, banks who meet the funding source of companies involved with fraudulent financial reporting will be in the verge to lose its investment. It has been noted that in general scenario, fraudulent financial reporting is conducted with the intention to resent an improved positioning of the business in front of the investors and other stakeholders. However, in the process it affects the quality as well as integrity of the process of financial reporting of the business. Furthermore, since fraudulent financial reporting is against the objectives of any business, it will certainly lead to jeopardizing the accuracy of the financial results in a considerable manner. Accounting professionals associated with the development of financial reports in any business may also be at risk of losing their license once caught on the grounds of fraudulent financial reporting. It has also been observed from secondary
The Group's strategy focuses on six key areas, in order to improve the operational effectiveness of its business. By a...
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
Additionally, today’s society is filled with legal and ethical concerns that surround numerous individuals and their responsibility is to keep all information private and accurate. Furthermore, accounting and financial reporting is the most significant function of a business and entails a great sense of legal, ethical and technological concern.
"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. There are many similarities and differences between the two scandals and many rules and regulations have been created in order to prevent frauds like these. Enron Scandal occurred before WorldCom and despite the devastating affect of the Enron Scandal, new rules and regulations were not created in time to prevent the WorldCom Scandal. Accounting scandals like these has changed the corporate world in many ways and people are more cautious about investing because their faith had been shaken by the devastating effects of these scandals. People lost everything they had and all their life-savings. When looking at the accounting scandals in depth, it is unbelievable how much to the extent the accounting standards were broken.
Integrity in the accounting profession involves adhering to the rules and principles of the profession. This includes remaining free of conflicts of interest and maintaining client relationships in which the accountant can remain objective in discharging his or her responsibilities. This requires independence in fact and in appearance as mandated under section 1.200.001.01, Independence Rule the AICPA Code. In other words, no one should be able to view the accountant as being biased with respect to a client’s financial reporting due to an improper client relationship. Lack of integrity in accounting practices has been, and continues to be, a key element in the downfall of many institutions which has hurt the public trust in the accounting
Taking a look at Donald Cressey’s hypotheses which is now known as the fraud triangle depicts the certain criteria for the mind frame of the fraudster. The fraud triangle is a theory that consists of perceived pressures, perceived opportunity, and rationalization. It gives us the different pressures placed on individuals that would make them consider “cooking the books.” It also demonstrates where the possible opportunity lies so that we may take precautions to eliminate the opportunity. Last, it demonstrates how a fraudster rationalizes with themselves to make committing the fraud okay. Donald Cressey believes all three elements must be present for fraud to occur. Upper management is usually the focus of financial statement fraud because financial statements are done at the management level. So in this case financial statement fraud was committed by the CEO Gregory Podlucky
My company would also potentially engage within the wrongful and unlawful accounting practices like those adopted by Enron. Enron adopted these wrongful and unlawful practice in financial accounting in the pursuit of an inflated business image that features success and innovation. For example, by trying to shift the loss of the company at the meantime to the future, Enron’s balance sheet looks much better. In addition, the profit that belongs to the future term could also be integrated into the reporting of the current terms’ revenue and profit Therefore, these practices managed to benefit the company in the short term. Our company would also make use of special purpose entities as vehicles to hide the company’s debt level so that the reported
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
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:
Fraudulent financial reporting is schemes that involve the falsification of an organization’s financial statements to make it appear more or less profitable. It is the deliberate misrepresentation, misstatement or omission of financial statement data for the purpose of misleading the reader and creating a false impression of an organization’s financial strength. This too can take place in any type of business, but generally is committed when there is pressure, either by the shareholders, owners, or board, for the business to do well and meet certain goals. Misrepresentation can be done a number of different ways including manipulating expenses, manipulating revenue recognition, improper disclosures, and recording the incorrect amount
Prior to 2000, Enron was an American energy, commodities and service international company. Enron claimed that revenue is more than 102 millions (Healy & Palepu 2003, p.6). Fortune named Enron “American most innovative company” for six consecutive years (Ehrenberg 2011, paragraph 3). That is the reason why Enron became an admired company before 2000. Unfortunately, most of the net income for the years 1997-2000 is overstated because of unethical accounting errors (Benston & Hartgraves 2002, p. 105). In the next paragraph, three main accounting issues will identify for what led to the fall of Enron.
Enron was on the of the most successful and innovative companies throughout the 1990s. In October of 2001, Enron admitted that its income had been vastly overstated; and its equity value was actually a couple of billion dollars less than was stated on its income statement (The Fall of Enron, 2016). Enron was forced to declare bankruptcy on December 2, 2001. The primary reasons behind the scandal at Enron was the negligence of Enron’s auditing group Arthur Andersen who helped the company to continually perpetrate the fraud (The Fall of Enron, 2016). The Enron collapse had a huge effect on present accounting regulations and rules.
The aim of this paper is to provide the framework of the current professional accounting code of ethics. What are the ethics and how we define them? In this report we try to determine the main ethical principles that will establish the right and
The principle territory we are planning to address is accounting fraud and how it could impact an organization by answering, the who, what, when and how. Its goal is to increase the awareness of accounting fraud and fraud counteraction. The intriguing thing about accounting fraud is that little disclosure as a rule usually leads to an enormous increase in fraud. A number of categories and sub-categories can be divided up for fraud.
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.