Analyse the Problem of Accounting Fraud in a Listed Company and Evaluate Possible Solutions

However, there have been many cases where the CEO and executive officers receive outrageous compensation even when the companies suffer. Overall, there is a wide disconnect between the incentive of the executives and the financial performance of their company, which needs to be fixed. By passing regulations and rules such as the Dodd-Frank Act, there is hope of shedding light on the connection between the company’s performance and the executives pay. Although it will provide a clear insight, it will not be able to set a strict regulated compensation or define what an executive should earn. Instead regulations will allow for more transparency for the shareholders regarding corporate governance issues such as executive pay. Along with that, it will force companies to take accountability for their actions. If they do poorly, then the executives should be paid less, and vice versa. Overall, there should be a direct alignment between executive pay and the company’s

Jeff Sacks-Wilner Term Paper What Management and Auditors can do to Help Prevent Fraud, Errors and Illegal Acts Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,

Executive compensation refers to the financial compensation, as well as other non-financial awards received by an executive from their firm as a result of their service to the organization. It mostly refers to a combination of salary, bonuses, shares of or call options on the company stock, benefits, and privileges, usually constructed to take into account government regulations, tax law, the desires of the organization and the executive, and rewards for performance. Executive pay plays a fairly crucial part of corporate governance, and is often under the control of the company's board of directors. ’

Executive Compensation The main objective of U.S. corporate governance system is maximization of shareholders value, thus executive compensation in U.S. are based on nature of the job performed and is linked to performance incentives such as bonuses or stock ownership. On the other hand, Japan and France corporate governance system objective lies on the mutual benefits of stakeholders, therefore their compensation is dependent on the achievements of the corporate overall objectives. Although all three countries uses different governance system, all utilize the same performance compensation format. Employees Stocks Options report stated that in 2000, 86% of US employers offered stock options to employees besides 19% of all employees were

Accusing the wrong companies of fraud is costly, both to the accused companies and to the public as a whole as such false claims to an injustice to law enforcement, investor and even public participation processes. Detecting Management Fraud in Public Companies is a refinement and confirmation study of the past studies that tested various models for detecting fraud, and updates them by checking how much more efficient they might be with newer methodologies that allow for more credible data management. By definition, some of the people who undertake fraudulent activities use tactics to hide their practices. The proposed revisions demonstrate that more sensitive techniques allow for at least better identifying the "grey area" where such companies may hide using publicly available data so as to minimize false presumptions to begin with (1158). Such refinements are seen as having specific, measurable returns for those seeking to eliminate fraud as well as for those who try to do honest assessments of the strength of companies who appear to be moving forward.

No instances were observed where management’s policies regarding compensation included extreme incentives. Compensation is in line with industry standards and management bonuses are based solely on achievement of short-term performances. Due to the conservative nature of management’s financial reporting practices, there is not an obsessive focus on short-term reported results. To further reduce temptations of potential incentives, performance is tracked against budgets and quarterly forecasts to monitor changes. The board of directors also actively exercises its oversight capacity in compensation related issues. Final approval of all

The regulators, SEC, U.S. GAAP, SOX of 2002, together with AICPA, PCAOB, and COSO concentrate on fraudulent reporting mechanisms and ways to lessen its occurrence. Inventors, public, and officials expect auditors detecting fraud to protect third parties interests. The auditors’ core responsibility is to confirm that financial statements are prepared fairly in accordance with U.S. GAAP. Therefore, auditors should comprehend real-world techniques to identify financial statement manipulation.

While acknowledging that many economists still view stock options as a part of compensations as being a non-issue, including distinguished economists such as Zvi Bodi, Robert Kaplan, and Robert Merton, I disagree. It may have been insignificant in the past, but this data shows that stock options have become a significant portion of our economy’s environment, and as such it has become a part worth measuring and analyzing. This cannot be left in the dark, and is likely to change the perception of our nations GDP and economic status. Economists such as Carol Moylan long held the belief that stock options haven’t been a significant enough portion of the economy to bother measuring. With the recent changes however Moylan and a few of others

Stock Option must be linked With Long term Interest ….. The other study of, Schmid and Walter (2009) also added that CEO’s with having the greater incentive alignment would be taken the higher risk compared to the weaker incentive alignment. During the crises, it has been evidenced that CEO’s had massive investments in their banks. The overall value of stock options in CEO’s portfolio was almost 8 times of the 2006 level. In order to achieve the strapping growth and stupendous returns in their investments , the major banks like RBS increased their debt / equity ratio to 86.20 % in 2008 against the level of 60.10% in 2005 ( RBS Annual Report , 2008). Similarly, HSBC has also swelled their debt/equity ratio to 10.6 times in 2007 -2008 from 7.5 times in 2005 (HSBC Annual Report, 2008). Thus, the implication was that substantial decline in the bank’s stock value has wiped out the whole compensation of the CEOs. On the

Introduction The course Fraudulent Financial Reporting and Corporate Governance of professor Hermanson is the great oversight of financial reporting and governance issues. The students are able to understand the roles of the board of director and board committees, the critique research on fraudulent financial reporting and the cycle of fraud through

There are several types of equity compensations with variety of impacts on the agents. The stock compensations and stock options compensations are the most prominent ones. The stock compensations are awards provided to the agents in stocks of the firms, in this way the shareholders reward agents by awarding them a part of the equity of the firm. Balsam and Miharjo (2007) have the belief that stock compensation provides direct link between executive compensation and shareholders wealth and therefore the interests of a firm’s CEO’s with those of its shareholders. Therefore, this type of executive compensation is very effective in aligning the principal and agent’s interest. However, stock compensation has negative side effects, such as an increase in risk aversion of CEO’s. By providing more stocks to a CEO, the risk attitude of CEO in a firm becomes different than that of the shareholders: whereas CEO’s will be loyal with most of their capital to their corporations trying to avoid risk while shareholders aim is to maximize their gains, and prefer more risk taking operations. Therefore, it is very important to provide the right executive compensation to motivate agent (CEO’s or executives) to act in the best interest of the principal (shareholders, debtholders) to mitigate the agency problem created by the provision of the stock

The study contributes to a growing body of research on the ex post shareholder value consequences of CEO pay in several ways. First, this lends support to using incentive pay as a potential instrument for addressing the conflict of interests between managers and shareholders. The market regulators therefore might want

An Evaluative Report on Company Fraud How does a company truly know if they have accurate check and balancing in place to detect malicious activity that may impact financial statements? The main obligation for the sufficiency and release in the company’s annual statements resides within the management of the company (Whittington

Further, anther role that was played by executive options which led to their subsequent rise in use was the belief that they would attract and retain talent within the company (Hall and Murphy, 2003). Stock options usually have a vesting period of around 10 years before they could be utilised by the executive, this option was usually forgone if the executive left the company before the options had vested. This provides a financial incentive foe executives to remain in the company for long periods of time. As we will see later in this paper however, there were many flaws

Listed company's accounting fraud of the Causes and Prevention [ABSTRACT] from the analysis of accounting Information distortion that is illegal, because the accounting fraud, manifestations and hazards start to analyze the accounting fraud of China's listed companies the motivation to find out the real causes of the accounting fraud, and through drawing and learn from foreign countries in the prevention and treatment of accounting fraud experience, to present my accounting fraud prevention and treatment response.