Company Scandals Underpinned By Non Conformity And Accounting Principles

Accountants are relied upon to be trustworthy and maintain high ethical standards. It is because of the nature of the profession that puts them in a position of trust with people who rely on their professional judgment and guidance in making decisions. These decisions are extremely important in accounting and more so that companies that have high ethical standard or main good ethical culture spend enormous time to train the staffs about the conduct that is expected of them.

Integrity: It is a type of assurance that the data or information is from trusted source and accurate.

Accounting looks at issues pertaining to transparency, integrity, effectiveness and accountability in the management of the affairs, and all other activities of an organization. The concern is for the welfare, good performance, corporate ethics and morality, as well as social and public responsibility for the good stewardship of governments and not for profit entities. This involves a system to ensure that the organization's obligations to its major stakeholders.

Mergers and acquisitions come with a lot of challenges to the parties as was the case with HFS Incorporated (HFS) and Comp-U-Card (CUC). HFS was a franchise with business interest in the hotel industry, real estate brokerage, and car rental initiatives that traded as Avis, Ramada Inn, and Century 21 (Katz, 2000). CUC engaged in membership based consumer services like auto, dining, shopping, and travel clubs. The HFS and CUC both had their shares traded on the NYSE. Cendant Corporation came about after HFC had merged with CUC. To ensure that certain regulations were complied with, CUC's senior management appeared to have hatched a scheme to ensure that CUC met financial results that the Wall Street analysts anticipated (Katz, 2000). To actualize this, the CUC senior management manipulated recognition of the company's membership sales revenue in order to accelerate the recording of revenue. They improperly utilized two liability accounts related to membership sales that resulted from commission payments. The management consistently managed inadequate balances in the liability accounts and occasionally reversed the accounts directly into operating income. Certain membership sales transactions were not recorded in the books. This aided them in overstating merger and purchase reserves (Katz, 2000). This reversed merger and purchase reserves into operating expenses and revenues. The CUC senior management also improperly wrote off assets and improperly charged

Accounting principles are like the Ten Commandments to a CPA. The principles are recommendation or instructions on what an account should follow when logging and informing on all accounting transactions. Businesses rely on their account every month to maintain the financials records of the company. At the end of each month, it is important for every transaction to be documented and posted as a financial entry in the monthly trail balance. An account needs to ensure all journaling is correct; an account must know the importance of how to record prepaid expenses, unearned revenues, accrued expenses, and accrued revenues.

Tracing back the history of accounting scandals, major corporate scandals not only hurt the economy but also crush investors’ confidence on investing in companies. For example, the Enron scandal, the WorldCom scandal, and so on. The majority of corporate scandals are created by greedy corporate senior officers. One way to create a scandal is “cooking the books”. Cooking the book is an accounting term which means making false financial statements in order to meet the number that investors or banks expected. In this case, Richard Scrushy is one of the greedy Chief Executive Officers (CEO). According to Washington Post, Richard Scrushy, was a self-made son of the new South, a former teenage parent who hauled himself up from a menial job to become an emperor of the new economy (Steve Barnette, Washington Post). Richard Scrushy, the CEO and the founder of HealthSouth Corporation, was one of the most successful and respected business men in the state of Alabama. This is a story of a fallen American dream.

The Enron Corporation failures made world headlines for many reasons ranging from greed from its executives, the alleged malpractice and criminal behaviours, and its quick and disastrous collapse. The most critical factor in Enron’s melt down was the use of creative and manipulative accounting practices to distort reported profitability and indebtedness that befell the corporation (A. Holt and T. Eccles, 2002) The accounting practices involved in this case are the revenue recognition criteria adopted by Enron Corporation, Market to Market strategies, the use of Special Purpose Entities, booking to cost as assets and the corporate governance practices.

In the last two decades, accounting scandals have become a truly global phenomenon. These scandals include the 2001 Enron scandal in the United States (Chaney and Philipich, 2002), the 2002 ComROAD scandal in Germany (Weber et al., 2008), the 2005 Kanebo issue in Japan (Skinner and Srinivasan, 2012), and the 2009 Satyam downfall in India (Bandyopadhyay et al., 2014). Moreover, these and other scandals involved the world’s most highly reputable audit firms, such as Arthur Anderson, PwC, and KPMG. Although auditors can be sued for negligence in the United States, such suits are rare or effectively absent in Japan, Germany, and India. With the biggest, most reputable audit firms failing in both high-litigation and low or no-litigation countries, it is appropriate to revisit the “reputation rationale” (DeAngelo, 1981) for audit quality and investigate to what extent reputation concern provides incentives for auditors (especially the large reputable ones), using a formal model of reputation formation.

Accounting scandals have happened in numerous companies. In one major case, the firm filed for bankruptcy, and many of its workers lost their jobs, savings, and investments from stocks. This major epidemic happen at Enron, an energy firm stationed in Houston, Texas founded by Kenneth Lay in 1986 (Frontain). On December 2, 2001, the Enron Corporation, an apparently strong and booming business, fell to an all-time low by shocking the world when it filed for bankruptcy protection. Many people were left unemployed and without their savings. Because of this scandal, numerous effects were left on the accounting profession since the scandal was traced to the company’s financial reports, accountants, and auditors (Buckstein Part 2, p.1).

Corporate scandals and accusations of fraud have amplified intensely over the last decade. The cost of fraud has reached over $400 billion dollars a year, not to mention the loss of investments and jobs. Corporation fraud involves creative, complex methods in which to overstate revenues, understate expenses, over value assets, and underreport liabilities. To hide financial problems, management will manipulate stock prices, minimize taxable income, and maximize compensation. “It 's been my experience… that the past always has a way of returning. Those who don 't learn, or can 't remember it, are doomed to repeat it” (Berry, p. 417, 2009). Enron Corporation, WorldCom, Incorporated, and Global Crossing Limited all claimed bankruptcy

‘The so called ‘new’ management accountant of recent times is quite possibly just a fantasy of new image seekers’ (Baldvinsdottir et al. 2010).

The case that I am focusing on is the accounting scandal by WorldCom in 2002. WorldCom was a telecom company that purchased many other firms and eventually bought MCI, currently owned by Verizon. In the years it was still operating as WorldCom, it had already taken over most of the Internet and data communications market, being known as the second largest long distance telecom company before it went bankrupt. With all this happening, the company would have to face two challenges if they were to be successful: one is the management of old and new organizations into one and the other challenge is the financial aspects of the new organizations (Moberg, 2003). During the company’s highest peak of success, it was considered one of Wall Street’s focuses. Through improper accounting practices, the company was able to favour themselves with new acquisitions as it allowed them to tinker within its financial aspects. The company decided to reduce reserve accounts from liabilities in order to add it to their revenue lines and got members to change operating expenses into long-term investments which in the end resulted in profits instead of losses. However, when WorldCom stocks started to decline the CEO at the time of this scandal, Bernie Ebbers, sought to pursue revenue growth and with an autocratic corporate culture persisting within the company, practices such as this were able to happen. An autocratic corporate culture would incorporate aspects such as centralized power in a

Nowadays, with the position of accounting becoming higher, accountants should have enough professional abilities to solve problems or make decisions. In addition, high quality accountants must follow a set of guiding principles for preparing financial reports during their careers. Therefore, numerous principles and rules are significant when it comes to accounting. The External Reporting Board (XRB) which called the New Zealand Conceptual Framework (CF) provides the basic principles. Comparing to CF, the rules-based accounting standards includes more detailed rules. Furthermore, the principle-based standards which based on CF provide broad points of departure for users to apply. This essay will critically assess if the principle-based accounting standards assists or hinders the decision making for accountants facing financial statements. Points covered include the principle-based accounting standards ’

For these reasons, corporate financial accounts do not provide accurate or sufficient information to corporate managers, investors, or regulators. This leads us to recommend that the SEC allow each stock exchange to set the accounting standards for all firms listed on that exchange and to promote the development of industry-specific non-financial accounts to complement the financial accounts (After Enron 53). The most important lesson of the Enron collapse is that every link in the audit chain including: the audit committee and the board, the independent public auditor, the bankers and lawyers that aided and abetted the misrepresentation of Enron’s financial condition, the credit-rating agencies, and the Securities and Exchange Commission failed to deter, detect, and correct the conditions that led to that collapse. Although not a part of the formal audit chain, most of the market specialists in Enron stock and the business press were also late in recognizing Enron’s financial weakness (Corporate Aftershocks 12).

Accounting is commonly depicted as the most boring, yet reliable profession possibly offered in the business school. But what if accountants managed to scam millions? How about billions? Accounting is a seemingly innocuous career, but corporations can manipulate their current financial state and become more appealing to investors with some clever help from their accountants. Accountants could embellish financial statements or secure higher balances for wage expenditures. A typical corporate mistake is improperly segregating duties of employees. If someone has more than one task, such as recording inflow of cash and controlling where it goes, then a chance of embezzlement can occur. Embezzlement is when an employee, usually under good faith, takes a small sum of money to pay personal finances under the guise of paying it back, but does it so often that they eventually get caught by an increased amount of missing cash. The SEC, Securities and Exchange Commission, carefully monitors these conniving, dishonest businesses. To enhance the duties of this agency, President Bush in 2002 signed the Sarbanes-Oxley Act, which dictated that publicly traded companies must maintain adequate internal control systems. Despite the strong reinforcements of regulating agencies such as SEC commissioners and auditors, corporations still manage to circumvent the proper accounting techniques that prevent fraudulent behaviors. Because of the consequences observed from the Enron and WorldCom