Company Scandals Underpinned By Non Conformity And Accounting Principles

1183 Words Mar 21st, 2016 5 Pages
Company Scandals Underpinned By Non-conformity to Accounting Principles.

Alex Kemp

Accounting principles are an important foundation to allow business owners, shareholders, the government and accountants to understand the financial position of a company. A failure to apply appropriate accounting principles can lead to inaccurate reports being used in business decision making. This may result in inappropriate investment and business decisions and lead to collapses as evidenced by the scandals surrounding One-Tel and Worldcom. Accountants employed by these business have been found to have acted unethically by manipulating the financial accounts.

Conservatism is the accounting principle of only recognising gains when earned and losses as soon as they are likely to occur. It is a necessary principle to ensure assets and revenues are not overstated and liabilities and expenses are not understated (1).

One-Tel and Worldcom were two companies that did not follow this rule and payed for it. One-Tel chased low profit business and failed to set aside sufficient money to cover future liabilities (1). An example of its low profit business practice was in their selling of sim cards to customers that would not have been accepted by other telephone carriers. These customers were mainly “single mothers, pensioners and teenagers” (3) and could not provide the company with long term profits. This led to an overstatement of future profit projections and an understatement of expected…
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