Assignment 3 1. List accounting practices that were used to fabricate the numbers in the financial statements. The unrealistic sales targets and abusive management style created a pressure cooker that drove managers to cook the books or perish. And cook they did---booking shipments as sales, manipulating reserves and simply fabricating figures---to maintain the illusion of unbounded growth even after the industry was hit by a severe slump. They also booked returns as inventory, carried obsolete parts and scrap from the old year’s inventory on next year’s books, packaged approximately 6,100 disk drives that had been contaminated in order to inflate inventory, intentionally shipped the same goods several times to enlarge accounting …show more content…
At last, it was too late for the CEO, auditors, creditors, suppliers and public to realize the fraud, while the loss was so large and the lies lasted so long, which was really hard for them to prevent. They also could not admit that they were lying, it would lead to bankrupt. Finally, the internal administrators could not control it anymore and no one kept confidence on the company. It is obvious to find from these facts that the internal accounting control of MiniScribe Corporation was totally failed. 3. To what extent are each of these parties responsible for the fraudulent reports (i) the CEO, (ii) the independent accountants and (iii) the board of directors? How does your answer compare with the actual penalty imposed on them? (1) The CEO on a company has responsibility for the integrity and objectivity of the financial information presented in financial statement, properly arrange and control procedures for the company. The reason why the fraudulent reports appear is that the CEO decides to lie to public when there is something wrong with the finance of the company, but not faces it. Thus, the CEO should be mostly responsible for the fraudulent reports. The board of directors consists of the audit committee of a company. The audit committee is responsible for recommending the Board for the independent auditing firm retained for the coming year, subject to stockholder ratification. What’s more, they meet the independent auditors, the company’s
The Molex Corporation is an electronic connector manufacturing firm, which is based in Illinois. This company is facing a financial reporting problem in which the financial statements were overstated. Joe King ,the CEO of the company, was appointed in July of 2001, and was responsible for managing and inventory control, among other very important duties. Diane Bullock was hired in 2003, to replace the previous CFO. Both Bullock and King were being accused of what? by the external auditors, Deloitte & Touche, for not disclosing an 8 million pre-tax inventory valuation error.
1. Compute key ratios and other financial measures for Crazy Eddie during the period 1984-1987. Identify and briefly explain the red flags in the Crazy Eddie’s financial statements that suggested the firm posed a higher than normal level of audit risk. 2. Identify specific audit procedures that might have led to the detection of the following accounting irregularities perpetrated by the Crazy Eddie personnel? a) The falsification of inventory count
Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay
The section 302 in Title III - “Corporate Responsibility for Financial Reports”, would have made the CEO and CFO, which are Monus and Finn, respectively, state their understanding on how fair the financial statements presents the condition and result of operations in all material aspects. In part 5, this section also requires disclosure of significant deficiencies identified in internal control to the auditors and audit committee, among other disclosures related to fraud.
What are the pressures that lead executives and managers to “cook the books?” There are several factors that can come into play. For WorldCom, it started with the deterioration of the industry in 2000. This was due to overcapacity, heightened competition, the economic recession, the dot-com bubble collapse, and a reduced demand for telecommunications services. All of these factors put extra pressure on WorldCom’s most important performance indicator, the expense-to-revenue ratio. The company was so concerned about keeping it above 42% that they were willing to do anything, even commit fraud. Bernie Ebbers told the senior staff that they would lose everything if the company did not improve its performance.
several actions that led to Enron’s bankruptcy. The issues were with the accounting method used as well as the negligence in the methodology of the company’s administration. Although once upon a time it was at its best, but gradually due to mismanagement, lack of sufficient business, improper business strategies and greed of the employees and the leadership all together became the reason for Enron’s bankruptcy. Under the section of Federal Bankruptcy Code, giant companies seek financial protection. Even it allows the company to protect itself from such threats, still all of the above were neglected by Enron Corporation.
2. Identify specific audit procedures that might have led to the detection of the following accounting irregularities perpetrated by Crazy Eddie personnel: (a) the falsification of inventory count sheets,
The audit board is in charge of administering the corporation's internal control structure, its budgetary detailing procedure, and its consistence with related laws, directions, and principles. The advisory group works intimately with the corporation's outside and internal auditors. SOX requires audit boards of trustees to be in charge of procuring, adjusting, and managing the auditors and for auditors to report
The auditing firm has been in engagement with the company throughout the period when the fraud was being committed. One of the common and clear indicators of possible fraud was the company’s cash flow statement. The company experienced positive growth in its profits from the year 1996 through to the year 1998. However, a close analysis of the cash flow statement shows that the company had experienced negative figures of cash flow from both operating and investing activities and positive cash flow from financing activities which would not sufficiently offset the negative cash flows from operating and investing. It is therefore evident
The readers should read this specific study to understand corporate fraud. Corporate fraud occurs more regularly than one may think, therefore, understanding what corporate fraud is and the history surrounding it would allow companies and accounting professionals to understand how to help prevent it from occurring within their workplace. In addition, the research provides vital information and history regarding SOX, PCAOB, and AICPA and the rules and regulations required with financial statement reporting and how to better implement rules and regulations to make the company a safer place of business. The research is also vital to companies and accounting professionals as it explains the type of people that commit financial statement fraud
Fraudulent financial reporting has gained substantial attention from the public after the scandals of many high profile companies in the 21st century. Periodic cases of financial statement fraud raise concerns about the credibility of financial reports and are as a result of problem in the capital markets, a dropping of shareholder value, and, the bankruptcy of the company. Thus, to respond to the public pressure over acts of corporate offense, the Sarbanes-Oxley Act (SOX) was enacted in 2002. SOX proposed major changes to the regulation of corporate governance and financial reporting by improving the accuracy and reliability of company disclosure. This essay will explain the effects of SOX on the financial statement fraud in an organization.
telecommunications company, was a victim of these expectations that led to the evolution of a
Some of the provisions related to this scandal are the certification of accuracy of the company’s financials, auditing firms are not allowed to offer non-auditing services and preclude financial expert to make profit or take advantage of the company’s financials for their own interest.
Inflated sales, profit margins, and account receivables, while failed to disclose direct competition from entities related to its chairman.
Both the external auditors and board of directors were blameworthy in this case. As mentioned above, Arthur Anderson 's auditing system did not have the ability to detect the fraud as they relied on the information being