Andersen shunted aside accountants who failed to adapt to the firm's new direction. In their place, Andersen promoted a slicker breed who could turn modestly profitable auditing assignments into consulting gold mines. Repeatedly, Andersen rewarded those involved with the firm's most troubled clients, while guardians of the company's legacy were shown the door. The quiet dilution of standards and the rise of auditor-salesmen at Andersen are central to the scandals that have cost investors billions of dollars. Even though the leaders contended that conflicts between its auditing and consulting missions had no impact on the quality of its work but actually they do.
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.
One reason is because of margin trading. When one does this one borrow money from a broker who borrows money from a bank. If the stock goes up everyone makes money, but if it goes down then everyone loses and eventually the owner has to sell his stock. Thus depressing the market even more. In addition to that, the stock market crashed because of a weak-banking system and because of the fact that the Government allowed businesses to make decisions even if it hurt everyone else.
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
The ultimate goal is to protect investors. Reason Many acts of corporate corruption in the 1990s and early 2000s brought on this regulation. There were many loopholes that allowed for accounting errors without any legal incentive to correct the problem. Due to the accounting practices at companies such as Enron, Tyco, and WorldCom investors lost billions. The accounting practices created a scandal in which the companies were able to hide information from investors.
Finally, this position was ended because of the scandal that an employee was charged with manipulating auctions of Treasury bonds. Several senior managers left afterwards. 2 years later, LTCM (long-term capital management) is founded with pursuing the same strategies, it has generated huge returns in the first couple years until Russia defaulted on its domestic debt. Another reason should be VaR’s wrong assumptions. VaR is used under assumption that positions can be undone rapidly at low cost, while it’s not applicable to systems has potential of vicious circle losses like in this case; the assumptions of hacing normal distribution of returns is also not practical; VaR does not inform on the size of loss that might occur beyond that confidence level; It’s being generated by using historical data,
For example, Bernard Madoff was a respected financier who “helped” secure people’s money and put in a savings account. But what people didn’t know was that he would commit fraud by taking their money and fooling them it was all still there. He roughly took about $65 billion dollars in total from people. This hurt many people not only financially but emotionally as well. These people felt betrayed by someone who seemed so innocent can do such a crime.
Enron was described as “House Of Cards” as it was built over a pool of gasoline. It all sort of became smoke and mirror. Louis Borget, former Enron's CEO was also exposed to be rerouting company’s money to offshore accounts. Once their schemes were discovered by the auditors, Kenneth Lay encourages them to "keep making us millions". However, the traders were fired once it was revealed that Enron's reserves were gambled away which nearly destroyed the company.
The firm’s senior managers had engaged in fraud for an extended period through a scheme in which partnerships owned by the managers could receive payment for goods and services never provided to Enron. Enron’s executive team was trying to create an enterprise, which would increase wealth among their shareholders. However, when it revealed that their stock prices were less desirable, certain aggressive accounting measures were required. Arthur Andersen, auditor and consultant to Enron, helped to make Enron’s shares look more favorable. Andersen knowingly certified false financial statements as accurate.
In the hopes that the market will recover, Lesson kept betting on the Nikkei 225, the more it declined. His decisions kept driving Barings bank into enormous amount of debt that was tactful covered through lies and mock up gains in other accounts. Leeson’s inexperience as a trader made his gambling be based on emotions rather than calculated risk. These speculations racked up the losses to an amount close to $1.4 billion dollars. 3.