Accounting Ethics: Techniques Used by Cendant to Manipulate Financial Results

Organizational misconduct is the chief cause behind corporate accounting scandals. The trusted executives of the corporation participation in actions during a scandal are corrupt and illegal. In the United States, the Securities and Exchange Commission (SEC) is typically the government agency that investigates such scandals. One of the most notorious corporate accounting scandals in the United States is the HealthSouth Corporation scandal of 2003. HealthSouth Corporation is one of the United States largest health care providers with locations nationwide. A deeper inspection of the HealthSouth scandal is needed to understand how it transpired by assessing how it was executed, the accounting issues and root of the issue, how it was exposed, the results to the company and its officers, and warranted ramifications as an outcome of the scandal.

The fraud accounting practice is the main problem incurred at WorldCom. The company had focus more on increasing the revenues and acquiring capacity sufficient. As the market conditions was worst in 2000, it severe the pressure on WorldCom’s E/R ratio closely monitored by analyst and industry observer. Thus, the management must find out the solution to overcome it. Unfortunately, WorldCom had chosen the wrong and illegal ways to solve their problems. Based on the article, there are 2 main accounting tactics used to achieve target performances which are accrual releases in 1999 and 2000 and capitalization of line costs in 2001 and 2002.

The aim of this essay is to evaluate that within a competitive world, companies should become ethical throughout many perspectives. Ethics refers to the standards of right and wrong in an attempt to influence behaviour. (Kinicki 2015 p.83) In stating this, companies can become ethical in such occasions being effective in the long run. These include ethics and financial performance in how companies can maximise profits and market share, ethical performance in discussing how companies can perform at its highest level. Also, ethical competition such as competitive advantage and ethics and sustainability can enable companies to become ethical within a global perspective. Despite the positive aspects, there are also some negative implications towards ethics.

This post will discuss two ethical accounting dilemmas that could occur in the CPA profession. For each dilemma, it will explain how the dilemma could be resolved based on logic and reason. It will then support that proposed resolution through support from the American Institute of Certified Professional Accountants (AICPA) Code of Professional Conduct.

In this chapter, we first provide coverage of expansion through corporate takeovers and an overview of the consolidation process. Then we present the acquisition method of accounting for business combinations followed by limited coverage of the purchase method and pooling of interests provided in a separate sections.

The SEC has a strong case against Goodbread for violating his independence because as it is stated on the AICPA’s website, “Independence shall be considered to be impaired if: During the period of the professional engagement a covered member was committed to acquire any direct or material indirect financial interest in the client.” (aicpa.org 101-1). In Goodbread’s case this refers to the fact that he had shares of stock (direct financial interest) in his possession when he was the audit engagement partner who oversaw the audit of Koger Properties, Inc.

Businesses, investors, creditors rely on accounting ethics. The accounting profession requires honesty, consistency with industry standards, and compliance with laws and regulations. The ethics increase the responsibility and integrity of accounting professionals, and public trust. The ethical requirements influence the management behavior and decision-making. The financial scandal of Enron and Arthur Anderson demonstrates the failure of fundamental ethical framework, such as off-balance sheet transactions, misrepresentation of financial statements, inaccurate disclosure, manipulations with earnings, etc. The confronted accounting profession and concern for ethics in businesses forced regulators to revise the conceptual framework of accounting processes.

Imagine trusting your hard-earned money like your retirement savings to a financial adviser or Certified Public Accountants (CPA) only to lose it all in a fraudulent Ponzi scheme. In today’s world of business many organizations, financial planners and accountants are in the news due to the financial ethical breaches that have affected their customers, employees, and the general public. A CPA has to be responsible for their audits and take any punishments as a result of their mistakes, incompetence or illegal actions. CPAs are expected to have integrity in their work,

Lastly, yet another drug company who may not have increased the price of their drug overnight, but over a few short years have made it difficult for patients to afford their life-saving medication as well. Another company that has been pulled in front of Congress to answer for their extreme increase of a lifesaving drug and that company is Mylan. There are many ethical issues surrounding this case with CEO Heather Bresch, her salary increases went hand in hand with the increased price of the EpiPen, not to mention how she acquired the position she holds with the company. In an Article written by Edward Cox (2016), he puts some of the unethical issues surrounding Heather Bresch into perspective, he stated:

I enjoyed the conversation on GAAP and earnings management relating to the case “Be Careful What You Wish For: From the Middle”. The conversation was brief, but got me thinking on the ethics of earnings management. GAAP accounting is to reflect in good faith the company’s actual financial status and present reality as is. It is not to present a manipulated set of numbers that paint a pretty picture. GAAP requires recording of revenue when there is persuasive evidence of an arrangement, assurance of collectability, a fixed or determinable price, and delivery. If Sarah recognizes revenue before delivery, she would violate GAAP and partake in channel stuffing. It would not be earnings management.

As with other disciplines, all personnel in the accounting profession ought to uphold high standards of professional ethics. All firms ought to conduct their affairs with due regard to the welfare of the parties involved, the economy, and the interests of the public in general. As such, auditors and accountants ought to be ambassadors of transparency and accountability and their conduct must indicate as much. In the wake of the housing bubble, the integrity of the accounting profession came into question amid claims by observers that key professional services firms such as Deloitte Touché, PricewaterhouseCoopers (PwC), KPMG, and Ernst & Young were colluding with their client firms to perpetuate 'deceptive accounting' in a way that the financial position of the client-firm appeared more stable and progressive. This helped the global financial crisis along. Amid the crisis, world economies tanked causing the fall of major economic giants. The unprecedented collapse of Lehman Brothers, American International Group (AIG), General Motors, WorldCom, Enron, Fannie Mae and Freddie Mac nearly took the global economy down with it. In light of emerging studies, corporate malfeasance was one of the leading causes for the collapse. All firms ought to conduct their affairs with due regard to the welfare of the parties involved, the economy, and the interests of the public in general under

In this paper, I begin by describing and assessing the different criteria financial analysts within Fortune 500 companies use to evaluate merger success and acquisition rationale. I also discuss what these strategies can imply about the sources of gains and losses on each company’s stock price, and the factors that drive merger success in the long run. I then discuss the firsthand evidence of this merger and acquisition by examining transaction details from both parties and transitioning into an analysis of CB&I’s strategy for post-merger integration. Finally, I discuss the implications of

To conceal this, they then booked revenue that should have been taken later and utilized financial reserves that were set up to cover cancellations for CUC’s membership clubs in discount travel, shopping, and dining. At the end of 1996, the company also began dipping into reserves intended to cover acquisition charges in order to boost revenue. Credit card rejections were sometimes recorded late, inappropriate depreciation of certain assets, delayed recognition of insurance claims and accounting that didn’t meet generally accepted accounting principles (GAAP). On April 15, 1998, Cendant released a shocking message after the markets had closed for the day. Company officials had discovered potential accounting irregularities in its core membership-club operations that will require it to reduce reported 1997 operating income by $10 million or more and that it will hurt this year’s earnings. The primary issue at hand was the method employed by the CUC unit in recognizing revenue in its club-membership sales. It was discovered that too much of the revenue was booked up front, while the recording of the expenses associated with the memberships was deferred until future periods. The following day, Cendant’s stock price plunged from $36.00 to $19.06 as an astounding 108 million shares traded hands. The average trading volume for the Cendant had

This brings me to the importance of acquisitions in Businesses. Acquisitions done at the right time can turn around the fortunes of any enterprise. For Example, Founded in 1911, the rapidly growing Swedish pharmaceutical company Pharmacia, showcased its first demonstration of market power with the purchase American rivals Upjohn in 1995 and Monsanto less than five years later. During that time Monsanto, had been developing the anti-inflammatory drug known as “Celecoxib”, which had been eyed by Pfizer during its development stages. Beaten to the punch by Pharmacia, the American Pfizer announced the purchasing deal of Pharmacia as a whole in July 2002 with the transaction tag of $60bn (U.S). Less than seven years later Pfizer would agree to purchase rival Wyeth for approximately $68bn (U.S). Today, Pfizer Inc. is worth as much as twice its value at $172bn (U.S). Taking another example, at one point Bank One Corp was the sixth largest bank in U.S.It was the first of many dominions that would be purchased by the millennials new born that is J.P Morgan Chase. After a string of successful mergers on its own, including its own consolidation of Chicago Corp and the National Bank of Detroit, Bank One’s buying

The key to the article “Cooking the Books” is to cover the business ethics of an accounting manager ordering one of his accountants to falsifying a company’s accounting ledger. The Generally Accepted Accounting Principle of expense recognition was not followed. The accounting manager was attempting to commit fraud for personal gain, he does this by manipulating the books to show higher revenue in order to meet the volume for management bonus. The accounting manager also created a hostile working environment by threating his accountant’s job security if he didn’t comply with his orders. The Sarbanes-Oxley Act will also be explored to see if there was a violation due to the unethical behavior of the