Aaron Atlhea aaronwesley74@gmail.com 2012FA-BMGT 1301-31420 Chapter 17 Case 17.2 Making the Numbers or Faking the Numbers? 1. What are the ethical and legal implications of using accounting practices such as the book-and-hold technique to inflate corporate earnings? * Depending on the specific situation of the accounting fraud, it results in financial cost, prison time, and other legal punishments. * The firm or the accountant losses credibility in the market, if an accounting fraud is found.
The Board cited differences in management style; however, as the scandal broke, it became clear Mr. Woodford was fired because he questioned the accounting related to the acquisitions. * It was eventually disclosed that Olympus had paid a $687 million dollar M&A fee to the firm that advised on the Gyrus purchase. The fee equated to 31% of the purchase price for Gyrus, the highest M&A fee ever paid. Within a year of the purchases, Olympus wrote down the value of the other 3 acquired firms by $751 million, over 75% of the total acquisition cost. * On 10/26/11 Tsuyoshi Kikukawa, the firm’s Chairman, President prior to Mr. Woodford and acting President after Mr. Woodford’s dismissal, resigned amid allegations that the exorbitant fees and prices paid for the acquisitions were part of a Tobashi scheme to cover up losses that dated back to the 1990’s.
Employees have the same opportunity to perform unethical accounting activities as the top executives. If an employee fears getting fired for making a mistake with the accounting transactions, the employee may decide to make adjustments to hide the mistake. This mistake could result in large amounts of money either gained or lost to the shareholders and the organizational could take disciplinary action to correct the problem. Another reason that employees could make unethical decisions with the accounting practice is for sabotage. If an employee becomes frustrated or feels the need to retaliate
Materiality is defined by the FASB as an omission that would affect a normal person by a misstatement such as using earnings management to skew the true earnings or revenue. This calls in to play the unethical behavior that earnings management places on the public (violating AICPA Code of Professional Ethics). SOX further required management and accountants to be cognizant of the material errors that financial misstatement and false reporting could have from an ethical standpoint. It holds them accountable for all financial reporting from their company. This includes criminally and financial accountability.
Matt LaFlamme Bus law 9am The Sarbanes–Oxley Act, also known as SOX was enacted July 30, 2002. SOX is administered by Securities and Exchange Commission, which sets time limits for compliance and publishes rules on requirements. SOX is not a business practice and does not regulate on how a business should store their records, it defines which records need to be stored and for how long they need to be stored. SOX was enacted due to the reaction of multiple major corporate and accounting scandals, which include Enron , Tyco international and WorldCom. These scandals cost investors billions of dollars when the share prices of affected companies collapsed, and shook the publics’ faith in the security markets.
However, the traders were fired once it was revealed that Enron's reserves were gambled away which nearly destroyed the company. After these facts were brought to light, Ken Lay denies having any knowledge of wrongdoing. Needless to say, when required to testify before the U.S. Congress on the reasons for Enron’s collapse, Ken Lay, Jeff Skilling and Andrew Fastow, sought refuge under the Fifth Amendment. Andrew Fastow, Jeffrey Skilling, and Kenneth Lay are among the most notable top-level executives implicated in the collapse of Enron’s. Kenneth Lay, the former chairman of Enron was prosecuted on 11 criminal counts of making misleading statements and fraud.
I conclude that although the abuse of the profession by investment institutions aggravated the financial crisis, accounting cannot be said to be a root cause. Second, I look at the potential of accounting to help with the resolution of the financial crisis. I argue that by enhancing the accounting standards and acting to eliminate weaknesses therein, accounting can play a significant role in aiding the global economy to recover. Several allegations have been made against the accounting profession, accusing it of precipitating the financial crisis. 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.
WorldCom’s fraud was an intentional misconduct of the perpetrated senior management that results in an $11 billion material misstatement in the financial statements via two principle forms: reduction of the reported line costs and exaggeration of reported revenues, in order to create an image of increased earnings and revenue and hold the line costs lower than the industry average rather than indicate the truth and fairness of WorldCom’s wealth and progress (Beresford et al, 2003). Here, based on the definition of SAS 99 and the summaries stated by Beresford, fraud that related to misstatements arising from fraudulent financial reporting is evident, which was mainly accomplished by the manipulation of revenues and certain expenses, such as the Corporate Unallocated revenue and line costs (capitalizing and leasing accruals of this item), and the intentional misapplication of accounting principles relating to those accounts as well. The fraud was
Unethical professional values were symptoms of systemic problems for Enron. “Enron’s systems of oversight, ethical disclosure, and corporate accountability were flawed leading to the demise of Enron” (Schuler, 2009, para. 2). In fact, in 1999 Enron directors waived the company’s code of ethics allowing the CFO, Andrew Fastow, to run an investment partnership that traded with Enron. Enron not only committed financial fraud, but it has been alleged that bribes
Cases like Enron, Madoff and other fraud cases have left companies vulnerable regarding how to resolve potential problems that may be related to fraud. Fraud risk assessments, which is a series of assessments used to determine the likelihood of a member or organization “using deception to make a personal gain dishonestly for oneself and/or create a loss for another (Samociuk & Iyer, 2010).” Through the evaluation of the importance of fraud risk assessment and the elements of a good fraud risk assessment, one can better understand how fraud risk assessments can positively affect the success of a company. Fraud risk assessment is an important element of a successful corporation for several reasons. Most of these reasons revolve around a company's naivete to the potential for fraud. Most corporations state that they did not realize that they had a high risk of fraud, which causes one to ask whether fraud could be prevented (Samociuk & Iyer, 2010).