The Effect Of Ceo Gender Earnings Management Through Accounting Accruals

Since the last couple of decades, it has become very common for companies to link CEO and executive pay to the stock prices of the firms. Companies try and use this strategy in order to align the incentives of senior management with shareholder interests. But, it has been found that this strategy might backlash and instead motivate managers to practice fraudulent methods in order to manage and increase the company’s reported earnings (Bergstresser and Philippon 2006).

Congress established the Sarbanes-Oxley Act of 2002, which is otherwise called the Public Company Accounting Reform and Investor Protection Act, in the beginning of corporate and accounting scandals that prompted liquidations, serious stock misfortunes, and a loss of trust in stocks (Batten, 2010). The demonstration forces new obligations on corporate administration and criminal authorizes on those supervisors who spurn the law, and it

In the wake of the major financial scandals, that occurred in 2001 and 2002 the United States Congress passed the Sarbanes Oxley Act (SOX) of 2002. These financial scandals adversely affected the public’s trust in the stock market, therefore passing the SOX helped investors to regain trust in investing in the stock market. Prior to the SOX being passed “neither management or auditors of publicly traded companies were required to evaluate, audit, or publicly report on the effectiveness of internal controls over financial reporting” (Kinney & Shepardson,

Prior to 2002, there was very little oversight of accounting procedures. Auditors were not always independent and corporate government procedures and disclosure provisions were inadequate. Sometimes, executive compensation was tied to the stock of the company which created an incentive to manipulate the stock price by using fraudulent accounting practices to make it look like companies were making more money than they actually were. The Sarbanes-Oxley Act of 2002 was introduced because of the collapse of several major corporations due to these practices. This paper will

Armstrong and Dennis R. Balch in the Journal of Legal, Ethical and Regulatory Issues, Volume 18, Number 2, 2015 they interview two former Chief Financial Officers, Aaron Beam and Weston Smith to conduct qualitative assessment using the Banality of Wrongdoing Model. During the assessment Mr. Beam and Mr. Smith were asked fourteen questions to gauge “the culture of competition, ends-biased leadership, missionary zeal, legitimizing myth, the corporate cocoon, banality of wrongdoing and greed.” The authors of this study concluded that Mr. Beam and Mr. Smith did not attempt to justify or rationalize their behaviors or their part in unethical practices and accounting fraud but rather admitted to being fully aware of their actions and knew the ramifications of doing such. Rather than trying to justify their behaviors it became more of anxiety and stress to both of them, however they “used the defense that they were more or less forced into the behavior by the Chief Executive Officer, Richard

Following these series of failures, SOX was enacted to restore investor’s confidence which was rattled and to prevent accounting frauds in the future with improved corporate governance and accountability which all public companies must comply. SOX was named after Senator Paul Sarbanes and Representative Michael G. Oxley, who were the main drafters of the Act. It was approved by the House of Representatives and signed into law by the President George W. Bush on July 30, 2003. Lack of ethics and integrity seem to be the key factors that caused accounting fraud. SOX revised the framework for the public accounting and auditing profession, provided guidance for better corporate governance and created regulations to define how public companies are to comply with the law. Although many have questioned whether SOX is actually effective to prevent frauds like Enron and WorldCom in future, it is considered to be the most extensive legislation related to publicly- traded companies and external independent auditors since the 1930s. President Bush called it “the most far reaching reforms of American Business Practices since the time of Franklin Roosevelt” (BUMILLER, 2002). The purpose of this paper is to determine whether or not Sarbanes Oxley’s regulations will be effective in preventing another financial statement fraud like Enron and WorldCom.

The Security Exchange Commission found that The Enron corporations CEO’s and executives hindered the company’s research methods by using information to reveal how the top leaders of the organization assisted and supported the unethical behaviors in the accounting and finance departments. These acts deteriorated the integrity of excellence professionals, associates, and employees who were associated with the Enron Corporation. On behalf of the entire organization, the Enron Corporation’s poor business practices gross standards that pertain to unethical behavior.

According to Pompper (2014), “incidents of high-profile deception over the past” four decades “have threatened the reputation of the … accounting function” (p. 131). For instance, an investigation was conducted into the financial audit and reporting process after the savings and loan banking crisis in the 1980s (Pompper, 2014). In addition, the criminal convictions of executives and bankruptcies of Fortune 500 companies such as Enron and WorldCom in the turn of the century motivated Congress to pass the Sarbanes-Oxley Act (SOX) in 2002 to strengthen regulations within the accounting profession (Whittington & Pany, 2014). As a result, the SOX introduced provisions that changed the accounting function, such as the establishment of the Public Company Accounting Oversight Board (PCAOB) and other major elements; however, the SOX regulations subsequently resulted in consequences to its compliance.

Hogan, Rezaee, Riley, and Velury (2008) noted the development of the auditing standards created due to the financial scandals that have occurred over the years. However, the authors note even with the development of SOX and SAS No. 99 there still does not appear to be a decline in financial statement fraud (232).

In this article, Mary Jo White, the chairwoman of the Securities and Exchange Commission, emphasized their crucial duty to protect shareholders from abusive practices they oversee. A good corporate governance and rigorous compliance are essential. However, ‘ethics and honesty’’ can become core corporate values when directors and senior executives embrace them. A recent academic study suggests that lax oversight can result when a director of a company is friendly with the chief executive overseeing it.

In the aftermath of major scandals and bailouts in the United States, the world`s and the public’s confidence in public corporations, has been shaken. With the publicized scandals of Enron and other corporations in the United States, the faith in public corporations fell as fast as the stock market. Investors had no confidence in corporations or in their boards. Measures needed to be taken to form regulations to provide stronger accountability, to prevent these types of scandals from happening and to rebuild the confidence of investors. Corporate governance of publicly traded

Lay was not the only executive to be involved in a corporate accounting scandal. “Former WorldCom CEO Bernard Ebbers borrowed” over four hundred million dollars from the company “that had improperly accounted for” nine billion dollars “and was forced into a” 2002 bankruptcy (Hoyle et al., p. 555). Moreover, there were many other large businesses that experienced corporate scandals in 2002, such as Adelphia Communications Corporation, Quest Communications, Tyco International, and others.

Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive

The ethical issue within this case study involves “the CEO” (e.g., Don Chambers) wanting “the CFO” (e.g., “Ron Smith”) to violate the law by manipulating forecasted predictions and quarterly data to show the firm’s performance as being superior to market expectations (Brooks & Dunn, 2015, p. 210). To further explain, Don got into a heated argument with Ron over quarterly numbers not matching up with the expectations of “market analysts” due to an unexpected slump in sales and profit margins (Brooks & Dunn, 2015, p. 210). Don is concerned that the firm’s performance not reaching the financial forecasts he set forth as an executive, as well as those predicted by analysts will do damage to both his and the firm’s reputation when quarterly and

I still have not declared a major, but one major I am interested in is accounting. Accounting is the practice of recording and analyzing financial records and transactions to an organization, agency, or individual. Getting a job in the accounting field would be wise because it is a field that is high in demand and will continue to become bigger. Also different companies give you plenty of opportunities to move up from an entry level position to an executive position. Most assume with an accounting degree all you can be is an accountant. But with an accounting degree you could have various jobs including an auditor, budget analyst, financial manager, school teacher, insurance sales agent, real estate broker, and many others. The most common career though, that uses an accounting degree, is an accountant.