A company internal environment can also pose an opportunity for fraud which is influence by the organization culture and the effectiveness of the company organization internal controls. A strong internal control can limit the possibilities for manipulation of results or for fraudulent financial transactions. There was various opportunity for fraudulent financial reporting with The Two Towers Bank. Mr. GAN Dalf who was the CEO of the bank was also the chairman of the audit committee, there was no independent member on the audit committee. Mr. GAN Dalf personally hired Fred Bagg who was the financial expert of the audit committee.
The fraud begun when Phar-Mor manipulated their financial statements, so that, no losses are reported in their statement. The company did so in order to preserve their reputation and their success and hide their losses. Based on this fault records and fault financial statements, big companies and banks began to invest in Phar-Mor. They invest approximately $1.14 billion in Phar-Mor thinking that it is a good investment because the fraud was not yet discovered. The fraud was altering records to understate cost of goods sold and overstate inventory.
(MCI, n.d.) These companies used fraudulent accounting methods to mask its declining earnings by painting a false picture of financial growth and profitability to prop up the price of its stock, eventually sending them both into bankruptcy. ANALYZE THE NEW OR ENHANCED STANDARDS FOR ALL US PUBLIC CONTROL BOARDS, MANAGEMENT, AND PUBLIC ACCOUNTING FIRMS THAT THE SOX REQUIRED: The fraudulent accounting practices of these companies spurred Congress to get involved and improve the accuracy and reliability of corporate disclosures. Two representatives of Congress, Senator Paul Sarbanes and Representative Michael Oxley, drafted the Sarbanes-Oxley Act of 2002. This act was put in place “to protect the investors by improving the accuracy
This is an implausible trend on the Balance sheet that BDO should have investigated further, especially with Leslie Fay’s outstanding Income Statement. 2.) First of all I would want to investigate vendor and customer accounts to reconcile payable and receivable amounts. Also, I would obtain bank statements and other lines of credit since the long term debt to equity ratio shows the company being highly leveraged.
Voodoo Anyone? Christopher Warden breaks down economics into a fool proof explanation, and uses terms references which a dummy could understand. As I read this informative book I gathered an understanding for the way in which our economy works, as well as the unseen ways in which our government handles the issues that affect our everyday life. In the first chapter, the author discusses what prices are the difference between the price of things, and the cost of things. He breaks down what the stores charge us in order to sell the product at a price we will pay, so the store can still make a profit on the item.
The big financial-center banks that erivatives may have won a Nobel, but are they really a sell derivatives, moreover, may have an incentive to push a good idea? Companies have suffered huge losses trading product without clearly explaining the risks to a customer. in the type of derivative financial products whose invention was “You see a gap between the sophistication of Wall Street firms facilitated by the work of Fischer Black and the Nobelists. and the client firms,” notes Suresh M. Sundaresan of the Options and other derivatives—including futures, forwards Columbia University Graduate School of Business. “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.
Crazy Eddie Financial Analysis 3/3/12 After computing the common size financial statements and financial ratios, I found many reasons why Crazy Eddie Incorporated should have been considered a high risk audit. The large size of inventory which was almost half of total assets would have made inventory a high risk area of focus. As we know Crazy Eddie’s executives grossly overstated inventories, and in order to prevent questioning they deliberately destroyed documentation that would have revealed an inventory shortage. This was a huge red flag and the auditors should have thought so as well. It may have been appropriate for the auditors to make an unannounced visit to some of Crazy Eddie’s warehouses and do inventory counts.
Businesses may argue against the accrual method because the IRS requires them to pay income taxes on money they have not yet received (Account Receivables). (Alexander, S. (1999, July 5)). Another potential drawback to accrual accounting is that recording revenue before it is actually received is risky. The possibility exists for a prior sale to be unrealized if a company who bought your goods or services has a problem with their ability to pay or it may decide to go out of business completely. Then, you are stuck having to get in line with the other creditors and take them to court in the hopes to recover your losses.
His strategy was to expend through aggressive acquisitions. In this case, we will answer some questions such as which functions of worldcom were the problem and discuss those problems, why following orders is not an excuse for breaking the law, what is Cynthia cooper doing after the fall of worldcom and what would have been another way to resolve the problem. Worldcom set world records for the largest company to ever go bankrupt, and for the largest accounting fraud. The top departments of the whole issue were the management and the accounting departments. The objective of managers is to maximize share holders values, the management department failed to fullfil investors goals .
Consequently, this lead to a liquidity crisis that required the United States Federal Reserve, European Central Bank, and the Bank of England to provide a considerable cash injection of capital into the financial markets. The mortgages were primarily in the US, but the resulting deficiency of finances had spread throughout the globe. Furthermore, this had a detrimental effect on other financial markets, thus having damaging consequences on many banks throughout Europe and the US. In addition economic growth showed a great downfall, with the increase in commodity prices influencing inflation to rise considerably. The inadequacy of the originate-to-distribute model to new mortgages that has been implemented over the years was held responsible for the unexpected change in financial environment, however a majority considered that after enjoying a credit ‘boom’ over many years, a credit ‘bust was due.