Crimes such as there are always unacceptable do to the creation of uncertainty in the markets. The fear is bad for business in the United States and in the world as a whole. Many investors’ lost substantial amounts of money due to the scandals. The Sarbanes-Oxley now places a tighter regulation and control on the reporting of a company’s financial reports while holding those within the company accountable with criminal charges. With all the modifications and changes that are now being enforces, business investments into public companies in the United States is
Of these, I believe two in particular depict the role of accounting in the financial crisis, these being the effects of fair values and the overly complex (and thus allegedly detrimental) nature of financial reporting. Let us first consider the issue foremost in the criticism against the accounting profession: that of fair values. According to Laux and Leuz (2010), the main allegations against fair value accounting in relation to the financial crisis were that they reported overstated leverage prior to the crisis and overstated losses during it, leading to excessive write-downs. These write-downs depleted the capital of banks and investment institutions, which consequently resulted in them making fire sales (selling their assets at very low prices) in order to meet their capital adequacy requirements. This then offset a downward spiral as a result of the contagion effects of the
Alan Greenspan had massive influence on the economy when he was the chairman of the reserve he set the tone of the economy when the Federal Reserve met, and that was mostly done by regulating interest rates. After Alan Greenspan retired in 2006 many economist came out and blamed Greenspan for keeping the interest rates to low between 2001 to 2005 in which caused the housing crisis in 2007. (Federal Reserve
may still have some errors in the financial reporting system in the organization’s internal control in the structure of financial misstatements or presentations. The success and accuracy of the financial reporting system is subject to risk of financial reporting. The changing market can affect the financial stability of the organization, and the legality of the reporting system. Apollo Shoe’s, Inc. has lost major customers because of legal issues. The organization is also in litigation with one of his customer who has filed a suit against the organization for an amount of $12,000,000.
The entries were booked as “capital expenditures” on the balance sheet instead of an expense. According to "What Went Wrong at Worldcom" (2002), “Such expenses must be immediately recognized in the period incurred, unlike expenditures which can legitimately be capitalized as assets and depreciated over their useful life.”(para. 7) The transfer of funds from one account to another led to over $3 billion in cost, this accounting was not justified by GAAP. The reason for this was to hide the earnings that were plummeting and to keep their stock at a high so that they may attract more investors. The company inflated the assets and made the entries seem as though they had income.
* The firm or the accountant losses credibility in the market, if an accounting fraud is found. * The trust built in the company over a long period of time by its investors and employees may be lost due to such accounting practices. * If the company indulges in inappropriate practices, it can affect the willingness of suppliers and customers to conduct business with it. Over time, this may lead to the destruction of the business entirely. * If company management is unethical to the extent of committing accounting fraud, the company could be subject to criminal penalties.
The mortgage crisis and bank bail out of 2008 were at the fault of the American government. Society, public opinion and the mass media were largely affected. The jobs of the Congress were also turned around since a lot of focus has been on fixing the banking and mortgage issues due to the meltdown from 2008. As a result our society has suffered a major economic downturn. In some areas, the government popularity level has lowered significantly.
The case of Enron is said to be a “smoke and mirrors” act dictated by top executives presenting the positive financial wealth of the company. Shareholders, lower executives, employees, and most American’s were not aware of the grieve financial trouble the company was enduring. Company Culture Enron’s motto was “respect, Integrity, Communication and Excellence” and along with that its Vision was “Treat other as we would like to be treated ourselves…” Both the motto and vision were inconsistent with the actual company procedures. Enron had a much different approach to the company culture and reward system they actually used. Competition was the main concept; which led to numerous financial mistakes in future years.
1. Why did accounting fraud occur at WorldCom? There were a number of reasons that led to the occurrence of accounting fraud at WorldCom but the main reason was to boost up the price of the WorldCom stock amid a slowdown in the telecommunications industry. As Bernard J. Ebbers, Chief Executive Officer, declared in 1997, “Our goal is not to capture market share or be global. Our goal is to be the No.
The next issue is a role of TBTF institutions. Firstly, some businesses that are so large can make up a significant part of an economic sector. So their failure could cause the sector to crash and damage the economy. Secondly, the failure of TBTF companies has the potential to take other businesses down with them, as all companies maintain relationships with partners. When a major source of orders disappears, a