Case 1.12 3. A “peer review” is an examination of an accounting firm’s quality control system and its compliance with the requirements of that system by one or more accounting professionals. Because Friehling & Horowitz’s audits of Madoff Securities were, in fact,” “sham audits”, then a thorough peer review would have revealed that those audits were false and misleading. The resulting peer review report filed with the relevant regulatory or oversight body would very likely have resulted in Friehling & Horowitz Being disqualified as Madoff’s audit firm. 4 Three conditions that are usually present when financial fraud occurs is the fraud risk triangle, the existence of an incentive and/or pressure to commit a fraud, the opportunity to commit a fraud is present (typically due to ineffective internal controls), and the ability to rationalize fraudulent conduct on the part of the given or potential fraudster.
Fraud in the the environment The accounting fraud that happened at WorldCom is a type of fraud that can take place at any company or organization. With accounting fraud, there are many people that are effected such as the organization, employees, and investors. There are many frauds that can occur such as system fraud, friendship fraud and overpayment fraud. Accounting fraud is when someone purposely tries to manipulate and change the financial statements of a company or organization. “A company can falsify its financial statements by overstating its revenue or assets, not recording expenses and under-recording liabilities.” (Nickolas, n.d.) WorldCom purposely overstated its assets to be able to dip into them to increase profits so it would
Khristine Jackson Week 2 Homework July 19, 2014 The Sarbanes-Oxley Act of 2002 (SOX) was a direct output of the financial statement fraud that sank industry giants such as Enron and WorldCom. 1) What are the primary goals and tenets of SOX with respect to fraud? The primary goals and tenets of the Sarbanes-Oxley Act of 2002 (SOX) are to concentrate on improving the value of audits in an effort to remove fraud in order to keep the public’s attention as well as for the security of investors. In addition, SOX requests corporate management to be more accountable for both fraud prevention and detection. Similarly, corporate board is also more responsible for the occurrence of fraud with the company; under SOX, those who contribute in
Out of the many parties in the league and the major force behind the debacle of Enron concern Andersen's, the accounting and auditing firm that once deserved name in the industry for its conscience in accounting professional services and auditing. The interesting feature is that some compromise in the profession of accounting services by Andersen's was notable, given that there are noteworthy feature of stock manipulation, especially in financial statements of Enron attended and audited by Andersen's. 2. List three types of consulting services that audit firms are now prohibited from providing to clients that are public companies. For each item, indicate the specific threats, if any, that the provision of the given service could pose for an audit firm’s independence.
“Because and swaps—are instruments for speculation as well as hedges bonuses on Wall Street are tied to transaction volume, this creagainst a drop in an asset’s value. They can be used to bet ates an obvious problem.” that the price of an asset will go up or down. Derivatives also One fear is that losses in the trading department of a large can have more of an effect on a portfolio than simply buying bank, say, could cause a meltdown of the financial system, a or selling a stock or bond because of the leverage involved. scenario that has sometimes prompted calls for stricter regulaLast November, for instance, an investor could buy nearly $1 tion. Critics of government meddling note that these dire million in futures contracts on the Standard & Poor’s 500 In- warnings have never
Protects investors. Sox was created to reduce statement fraud, after the fraud scandal by Enron and WorldCom. It was created to establish higher standards in companies accounting procedures. To make sure that the information provided in the financial statements is accurate. Also to be able to penalize the individuals responsible for the fraud and to provide protection to the individuals that provide information about fraud committed in the companies.
The company, the employees, the investors, and the general public can all be involved when unethical behavior occurs. The credibility and reputation of a business can be greatly affected. The main party involved in this unethical research case was the Apollo Group, which is the parent company of the for-profit education corporation University of Phoenix, its chief executive officer and its chief financial officer. Other parties included shareholders of the company and The Policeman’s Annuity and Benefit Fund of Chicago. The case was allowed to be taken to court based on the Private Securities Litigation Reform Act of 1995 (PSLRA), which was intended to reassure institutional investors to lead securities fraud
According to Anup & Chadha (2005), Ethical misconducts often lead to corporate scandals that come with serious consequences e.g. fraud Ethical conduct/ behavior is stated by the Business Dictionary as
Ethicality of Accounting Activities The WorldCom case is an example of unethical behavior performed by a company by abusing accounting activities to reflect misleading financial information. In this case the main cause of this unethical behavior is greed and neglect by the executives that allowed and encouraged this behavior. On the other hand, WorldCom employee Cynthia Cooper is a prime example of ethical behavior that took place to uncover the wrong doing of individuals. Upon reading an article of a former financial analyst, Cynthia Copper’s mind was intrigued, an audit was conducted on capital spending. In the WorldCom and Cynthia Cooper case unethical behavior was evident in multiple departments and involved top key players that tried to cover up the fraud.
An opinion as to what action the government should take to rescue the funds. It has become necessary for the government to take proper decisions or actions to rescue the funds of the social security system. If they do not take or adopt proper actions for it, it can lead to insolvency of the whole system. If the government starts investing all its funds in the private sectors of its own country, this will create excessive amount of investment and bubbles in the society. Due to this, the investment made can create principles losses during downturns and in the cycle of the business.