Audit work paper manipulation by Deloitte Touche Ross in the North Face Inc.case. Course Title: Advanced Auditing Date: November 15th 2012 Author Note Abstract This paper explores the instance of audit work paper manipulation by Richard Fiedelman of Deloitte Touche Ross (DTR), a leading Public Accounting firm who failed to exercise due professional care in the carrying out of his duties in the course of the audit of their client North Face Inc. It evaluates the severity of the Securities and Exchange (SEC’s) sanctions imposed on Richard Fiedelman for the violation of Generally Accepted Accounting Practices (GAAP) and Generally Accepted Auditing Standards (GAAS). It also covers the practice of ‘materiality’ used by public accounting firms and how this should be addressed with audit clients. The paper discusses the options of responses to being asked to modify client work papers by the engagement partner.
(INTRO) One of key accounting activities this WorldCom case points out is how WorldCom capitalized leased lines which brought little or no value to the organization, but were accounted as capitalized assets, and the impact this can have on external users. “To maintain and broaden public confidence, members should perform all responsibilities with highest sense of integrity.” (AICPA.com) By capitalizing the costs of these leased lines instead of it would have shown a significantly lower net value of the company. It would have negatively affected cash flows and all the ratios. This activity certainly discredits the profession. It does not offer the fullest disclosure, objectivity, and transparency.
(1) Earning Management According to Ronsner (2003), earning management is defined as a management technique that can let managers achieve their outcomes by influencing the financial statements. These actions will mislead some stakeholders’ opinion about the company’s underlying economic performance; Also, earning management can influence the contractual outcomes which come from accounting numbers (Healy and Whalen, 1999). In Worldcom case, CFO Sullivan use accounting entries to reach targeted performance, this improper earning management tried to conceal the real economic value and performance of Woldcom from the stakeholders who will use the financial statements. (2) Motivations of earning management The reason of earning management is to affect financial statements’ users’ understanding about the company’s economic performance or influence the outcomes which depend on the reported accounting numbers (Lin, Radhakrishnan & Su, 2006) Firstly, one of the most important motivations of earning management is Managers’ career concerns. Because earning management allows managers to reach their desired outcomes by influencing firm’s financial statements.
1 Terry Wilcox The Lack of Our Directors Duty to Care Week 8 – Individual Work 1 Everest University December 6, 2013 2 I am the company ombudsman and my job entails investigating complaints of wrongdoing on the part of the corporate directors and officers. It is also my job to decide whether there is a violation of the law and deal with the wrong doers accordingly. Jane, one of our shareholders, alleges that our director’s decided to invest in the firm’s growth relying heavily on negligently relied upon officers’ faulty financial reports. This caused Goody to borrow to meet its obligations, resulting in a drop in its stock price. In a corporation a board of directors are usually hired by shareholders every 1 to 3 years and it is the responsibility of the directors to make sure they exercise duty of care and duty of loyalty.
Although it would appear wise to accept gifts or provide gifts to another company to earn their business you are in fact interfering with normal business practices and in most companies can be a reason for termination for such actions. Successful careers are not built by the gifts or bribes one receives but by the determination of professional individuals whose physical and mental labor is the foundation of any profitable business. While professional ethics are the mold that results from the morally obligation to provide fair and equal treatment to others, professional values are the substance that is engulfed by smart business practices and mission statements. Certain Mission Statements can include particular values such as a specific services that are responsible for providing their customers the services or products they demand. Examples of some mission statements are listed in table 1 below.
What Union Carbide failed to see was without the employees and the local community , there will not be profit because how can a corporation run without people to help it function or run . When we ignore the rights of people and the laws that regulate acceptable behavior as, indeed, ethical egoism asks us to do when it is profitable, the necessary result is disastorous . 2) Are the differing economic circumstances of an indian worker compared to that of an indian worker compared to that of a US worker sufficient
Vandivier realized irregularities on data, the calibrations were manipulated, he has two choices , to manipulate the data or defy his boss. Q3 : How did Sink and Warren looked at the matter? How would you evaluate their conduct? They weren’t faithfull at all, they just wanted to done with project without
Some companies make an decision that stop providing the service to these unprofitable customers. It can be considered as a customer divestment strategy. In fact, divesting unprofitable customers is risky in some situations. To make right decisions, managers need to analyse the major characteristics of unprofitable customers then find the risks of divesting unprofitable customers. Unprofitable customers can be understood simply as people who bring nothing and even make bad debt for your company.
What Could Have Been Done Differently The ego of the top management doomed the company. They refused to admit defeat and seek help until the very last minute . The people were lied to by the top management. Moral Rights & Virtue Approach - Top management could have asked themselves if they are respecting the rights of various stakeholders’ such as the right
Perhaps someone does not agree with the policies the company is putting in place. Maybe they see a mistake with following that procedure. Will they speak up? More than likely not if they are afraid to challenge someone who perhaps is threatening them that if they don't agree or comply, then they can kiss their job good-bye. Sechser says, "strong powers would make more potent threats since they can threaten especially severe punishment for non-compliance" (p. 627, para 1).