Ten Publicized Audit Failures

In this case, there are several conspirators who is involved in the fraud receiving punishment from either SEC or federal government. Robert Levin, the AMRE executive and major stockholder, and Dennie D.Brown, the company’s chief accounting officer, were subject to the punishment in the form of a huge amount of fine by the SEC and the federal government. This punishment came from reasons. After AMRE going public, the company have the obligation to publish its financial reports but its performance did not meet expectation. The investigation by SEC shows that Robert took the first step of this scam, fearing the sharp drop of AMRE’s stock price because of the poor performance of company. He abetted Brown, to practice three main schemes to present a false appearance of profitable and pleasant financial reports. Firstly, they instructed Walter W.Richardson, the company’s vice president of data processing, to enter fictitious unset leads in the lead bank and they originally deferred the advertising cost mutiplying “cost per lead” and “unset leads” amount, so that they deferred a portion of its advertising costs in an asset account. The capitalizing of advertising expenses allowed them to inflate the net income for the first quarter of fiscal 1988. Secondly, at the end of the third and fourth quarters of fiscal 1988, they added fictitious inventory to AMRE’s ending inventory records, and prepared bogus inventory count sheets for the auditors. Thirdly, they overstated the percentage

The Italian dairy food corporation Parmalat SpA was founded by Calisto Tanzi in 1961 and grew to a global company. It had about 140 production centers, 36,000 employees and 5,000 contracted dairy farms (https://en.wikipedia.org/wiki/Parmalat). The dairy food giant defaulted on debt in November 2002 and filed bankruptcy in December 2003. It sounds ridiculous because Parmalat’s subsidiary in Cayman Islands had a $4.9 billion cash balance in Bank of America account. However, this account was falsified. Meanwhile, Parmalat also hid losses of $10 billion and increasing assets as high as $19 billion. The auditors did not show enough professional skeptism and due care during the audit.

This $490 million came from the netting manipulation when they offset their expenses with unrelated gains on the sale of assets. The geography manipulation allowed them to move millions of dollars to different sections of the income statement to “make the financials look the way we want to show them” said James Koenig, one of the primary forces behind the scandal. However, none of the fraudulent activities would have gone unknown for so long without the aid of the auditors, Arthur Anderson LLP, involved with Waste Management.

The Enron and WorldCom scandals were arguably the incidents that permanently changed the procedures for accounting controls. In response to these incidents, the Sarbanes-Oxley Act (SOX) of 2002 was passed. Once the knowledge of these scandals was made public, a number of subsequent accounting scandals were discovered in public companies such as Tyco International, HealthSouth, and American Insurance Group. In addition, a then-employee-owned company, Post, Buckley, Schuh & Jernigan, Inc. (dba PBS&J, now known as “Atkins North America, Inc.”), was also hit by a similar accounting scandal. Henceforth, a case study of PBS&J is presented where we will examine the fraudulent transactions that

The situation began to unfold when the Securities and Exchange Commission was probing into a restatement of the company's stock price. Kozlowski's business practices raised some eyebrows. In 1999, the Securities and Exchange Commission (SEC) initiated an inquiry into Tyco's practices that resulted in a restatement of the company's earnings. In January, 2002, questionable accounting practices came to light. Tyco had forgiven a $19 million, no-interest loan to Kozlowski in 1998 and had paid the CEO's income taxes on the loan. It was found that he company's stock price had been overrated, and that the CEO and CFO had sold 100 million dollars' worth of shares, and then stated to the public that he was holding them, which was a misrepresentation and misled the investors.

Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,

He provided personal loans to key senior executives for that purpose. One former senior manager told the Financial Times that Ebbers offered $80,000 to $300,000 loans to as many as 50 top executives. These loans were not put in writing, but it was understood that they would be repaid. How the process of Fraud became? was accomplished in two main ways: First, WorldCom's accounting department underreported 'line costs Second, the company inflated revenues with bogus accounting entries from.

On March 15, 2005 former CEO of WorldCom, Bernard Ebbers sat in a federal courtroom waiting for the verdict. As the former CEO of WorldCom, Ebbers was accused of being personally responsible for the financial destruction of the communications giant. An internal investigation had uncovered $11 billion dollars in fraudulent accounting practices. Later a second report in 2003 found that during Ebber’s 2001 tenure as CEO, the company had over-reported earnings and understated expenses by an astonishing $74.5 billion dollars (Martin, 2005, para 3). This report included the mismanagement of funds, unethical lending practices among its top executives, and false bookkeeping which led to loss of tens of thousands of its employees.

Parmalat is a multinational Italian dairy food corporation that today represents one of the biggest fraud scandals that has marked history in Europe. What happened and why weren’t the scandalous activities detected beforehand? Parmalat’s investigation was triggered when it “defaulted on a $187 million bond payment in mid-November 2002.” This led to further revelation of the nonexistence of $4 billion worth of claimed bank deposits held by a subsidiary in the Cayman Islands in a Bank of America account. The company was basically falsifying accounts in order to increase assets and hide losses. The increase in assets would influence the public to believe that they were in a good position which in turn allowed

P., & Coulter, M. K., 2012, p. 152), although it seems none of WorldCom’s executive management team seemed to feel this way. Many steps could have been taken to prevent the collapse of the WorldCom empire, but only a few key managers held the power and none were willing to take action. One control that did not exist in WorldCom’s culture was allowing both internal and external auditors access to all necessary documents and statements. Without full disclosure of these items no one could see how many risks the company was taking by making fraudulent entries against their books. Also the external audit team, Arthur Anderson, held WorldCom as one of its best customers which was a major conflict of interest. This relationship lead to many fundamental mistakes from Anderson not keeping pressure on WorldCom and getting all vital information that would prove how poorly the company was being run. Had they been operating transparently, auditors and employees would have seen the accounting deception and could potentially have stopped it prior to the company’s collapse. In addition, by employing multiple auditing firms many of the mistakes being made may have been caught and discontinued from the beginning.

On June 15, 2002, Arthur Andersen was convicted of obstruction of justice for shredding documents related to Enron’s audit which resulted in the Enron scandal. The impact of the scandal combined with the findings of criminal complicity ultimately destroyed the Arthur Andersen LLP. The company was accused of destroying thousands of Enron documents that included not only physical documents, but also computer files and Email files. By giving it the role of consultant along with their original role as external auditors, Enron made Arthur Andersen LLP a key player in Enron auditing.

This research paper will explore the fraud at Tyco and focus primarily on accounting and auditing issues related to the fraud. One thing worth noting about this case is that fraudulent financial reporting was not at the core of the fraud, which was the case with majority other big frauds at the time, such as Enron and Waste Management. On the contrary, fraud consisted of misappropriation of assets, and fraudulent financial reporting came as a consequence of trying to hide misappropriation of assets and the use of corporate money for personal benefit.

Needed for the Houston office of Andersen, an audit partner that understands the role of being a "public watchdog" with "ultimate allegiance to the creditors and shareholders" . Arthur Anderson abandoned its roles as independent auditor by turning a blind eye to improper accounting, including the failure to consolidate, failure of Enron to make $51million in proposed adjustments in 1997, and failure to adequately disclose the nature of transactions with subsidiaries . Another example is Lord Wakeham joined Enron as a non-executive director in 1994 and also sat on Enron's audit and compliance committee. In addition, Andersen also provides internal audit service to Enron, which in fact impact

There were many issues in this case but one of the main issues that stood out was the fact that Andersen there was a conflict of interest because Andersen was the auditor and consultant for Enron. There are positive attributes when auditing and consulting at the same time for a client such as building a relationship with the client and promotes business; allows the auditor to become familiar with the clients’ business environment, and reduces the overall cost of the client. However, when a firm audits and consults for their client, the audit/consulting firm works so closely to the client that it makes ethical decisions very difficult to make and the auditors lose objectivity and become partial due to the conflict of interest.

There were several people responsible for the WorldCom scandal, as well as, whistleblowers that first discovered the accounting fraud. The former CEO, Bernard Ebbers was found to be the main offender of the fraud. He did it by capitalizing inflated revenues with phony accounting entries and he was eventually sentenced to 25-years for fraud, conspiracy and filing false documents with regulators. Scott Sullivan, the former CFO, pleaded guilty to one count of conspiracy to commit securities fraud and was sentenced to 5-years after testifying against Bernard Ebbers. The former Director of General Accounting, David Myers, pleaded guilty to