Companies want to put their best foot forward when they release financial statements. This has led many companies to submit false financial statements that misinform investors and creditors. Often times this is done deliberately and intentionally. According to Cooper (2005), this might involve: - The falsification, alteration or manipulation of material financial records; - Material, intentional omissions or misrepresentation of events, transactions, accounts, or other significant information from which financial statements are prepared; - Deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report and disclose economic events and business transactions; or - Intentional omission of disclosures or presentation of inadequate disclosures regarding accounting principles and policies related financial amounts. According to Quffa (2003) financial statement fraud has disastrous effects and these include: • Undermines the reliability, quality, transparency, and integrity of the financial reporting process • Jeopardizes the integrity and objectivity of the auditing profession, especially auditors and auditing firms • Diminishes the confidence of the capital markets, as well as market participants, in the reliability of financial information •
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.
Key Accounting Activity Involved The key accounting activity involved in the case of Cynthia Cooper and WorldCom was capital expenditures, which is defined as “…the funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment” (Capital Expenditure - Capex, 2013, para. 1). In this case, the capital expenditures were used as corruption to journalize large amounts of money incorrectly, as prepaid capacity, and moving from account to account (Mintz & Morris, 2011). This caught the attention of an internal auditor that started digging to found where the money was going. The prepaid capacity was used to cover the true nature of the expenditures, moving large amounts from the income statement to the balance sheet (Mintz & Morris, 2011).
Why or why not? Week 2 DQs Financial statements are an important product of the accounting process. Provide an example of an internal user. How could he or she be harmed by fraudulent and unethical financial statements? Financial statements are an important product of the accounting process.
It uses Public money unnecessarily and is unfair to taxpayers. It makes financial reform going forward much more difficult. Protecting the markets for derivative products like CDOs and CDSs allows for a repeat of the risky practices that got us into the current crisis. And finally, by guaranteeing the corporate existence of large banks, we are maintaining their power and priorities and thus are not likely to see gains on predatory lending, foreclosure abuse, and other areas where reform is sorely needed. If we want to help the people who are suffering in this crisis and recession, then we should make financial policies with them directly in mind.
JACKSON HEWITT TAX SERVICES AND ITS UNETICAL DILEMMAS Introduction Jackson Hewitt Tax Company is known for preparing taxes and getting customers bigger refunds. While the company stands behind its reputation and does a great service to those in need. Research shows that there is some evidence of unethical behavior from the company. Fee increases, fraudulent tax returns, employees pay cut, bonuses not being paid to employees to name a few. A closer look at the organizational behavior of Jackson Hewitt is needed.
When revenue is less than expenses, there is a problem. Identifying the overages in expenses is crucial because these costs have a negative impact on the performance indicators profit margin and return on equity. This is what the CFO, Sullivan, was trying to avoid. The purchase of the line leases was a bad business decision that caused a major problem for the company and rather than deal with the consequences of the bad business decisions, Sullivan and others tried to hide the problem. The internal controls monitoring provided by Ms. Cooper and Mr. Morse uncovered the fraudulent transactions meant to hide the losses incurred when the telecommunications business fell off.
Financial Analysis A company’s strengths and weaknesses are better understood by their financial statements such as Income Statement, Cash Flow statement, and Balance sheet. As Financial consultants, our goal is to help CanGo understand their financial statements and where CanGo needs to improve to gain the competitive edge in the market. Every company needs to understand their own financials before analyzing the market or industry. After analyzing CanGo’s efficiency ratios, we found them to be very un-attractive for investors. For example, CanGo has a very high receivables turnover rate.
This account can be the target of fraud in the organization because it can be intentionally misstated and violate the accuracy assertions. Employees can easily misstate the amounts that a fundraising event actually cost the organization and pocket the discrepancies. The auditor should do analytical procedures and substantive tests in order to detect these misstatements. Additionally this account should be analyzed and compared to the bills the organization has on file. The final account that is on the balance sheet under the net assets and fund balances of the balance sheet would be the unrestricted net assets account.
Reporting Practices and Ethics Paper HCS/405 Reporting Practices and Ethics Paper In the world of financial reporting, numbers can make or break a corporation. Growing competition and diminishing profits are driving some companies to compromise their ethical standards and falsify corporate financial data. These deceptive accounting methods can cause a once thriving corporation to crumble into dust. Ethics must be at the forefront of any healthcare accounting department. Fiscal transparency within the income statement, balance sheet, cash flow statement, and statement of equity must all reflect honest and integral data in order maintain the financial stability of the corporation.