What do you think about this approach? Do you agree or disagree? Why?
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An accounting scandal at British retailer Tesco in 2014 led to fraud charges being filed against three former employees. At the time of the fraud, Tesco suspended eight managers thought to be involved in a scheme to book revenues early and delay reporting of expenses. Such a practice would lead to overstating profits and making company performance look better than it actually was.
Although criminal charges have been filed, the company did not believe that the managers benefited personally. Some managers resigned before the scandal broke feeling "...'compromised' as a financial professional." Others were "too scared to speak out because they're worried about losing their jobs and paying their mortgages."
Tesco paid a fine of $162 million and compensation to shareholders as a result of the activities.
In the case of Tesco, managers made choices about the timing of revenues and expenses that led to fraud charges. In order to avoid that, perhaps accountants should always assume the worst-case outcome. Then they will not be accused of misleading investors. What do you think about this approach? Do you agree or disagree? Why?
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- Diamond Foods, Inc. (LO 8, 9) In February 2012, the Wall Street Journal reported that Diamond Foods, Inc. fired its CEO and CFO, and would restate financial results for two years. The restatement was required after the company found that it had wrongly accounted for crop payments to walnut growers. The investigation focused primarily on whether payments to growers in September 2011 of approximately $60 million and payments to growers in August 2010 of approximately $20 million were accounted for in the correct periods. Shareholders suing the company allege the payments may have been used to shift costs from a prior fiscal year into a subsequent fiscal year. In a February 2012 filing with the SEC, the audit committee stated that Diamond had one or more material weak nesses in its internal control over financial reporting. In January 2014, the SEC charged Diamond Foods and two former executives for their roles in the accounting scheme to falsify walnut costs in order to boost earnings and meet estimates by stock analysts. Diamond Foods agreed to pay $5 million to settle the SEC’S charges. a. Does the restatement suggest that the company’s internal controls contained a material weakness? Explain your rationale. b. In September 2011, the company filed its annual report with the SEC for its fiscal year ended July 31, 2011. As part of that filing, the company maintained that it had effective internal controls over financial reporting as of its year-end date. Do you believe that management’s report on internal control over financial reporting was accurate? c. In February 2012, the audit committee indicated that the company had ineffective internal controls. What types of material weaknesses do you think might exist at Diamond?A former chairman, CFO, and controller of Donnkenny, Inc., an apparel company that makes sportswear for Pierre Cardin and Victoria Jones, pleaded guilty to financial statement fraud. These managers used false journal entries to record fictitious sales, hid inventory in public warehouses so that it could be recorded as “sold,” and required sales orders to be backdated so that the sale could be moved back to an earlier period. The combined effect of these actions caused $25 million out of $40 million in quarterly sales to be phony. Why might control procedures listed in this chapter be insufficient in stopping this type of fraud? How could this type of fraud be stoppedThe CEO and the CFO of Automation Company were both aware that the company’s controller was reporting fraudulent revenues. Upper-level executives are paid very large bonuses when the company meets the earnings goals established in the company’s budgets. While the CEO had pushed the CFO and controller to “make the numbers,” he had not told him to “make up the numbers.” Besides, he could plead ignorance if the fraud was ever discovered. The CFO knew he should prohibit the fraudulent reporting but also knew the importance of making the numbers established in the budget. He told himself that it wasn’t just for his bonus but for the stockholders as well. If the actual earnings were below the budgeted target numbers, the stock price would drop and the shareholders would suffer. Besides, he believed that the actual revenues would increase dramatically in the near future and they could cover for the fraudulent revenue by underreporting these future revenues. He concluded that no one would get…
- The CEO and the CFO of Automation Company were both aware that the company’s controller was reporting fraudulent revenues. Upper-level executives are paid very large bonuses when the company meets the earnings goals established in the company’s budgets. While the CEO had pushed the CFO and controller to “make the numbers,” he had not told him to “make up the numbers.” Besides, he could plead ignorance if the fraud was ever discovered. The CFO knew he should prohibit the fraudulent reporting but also knew the importance of making the numbers established in the budget. He told himself that it wasn’t just for his bonus but for the stockholders as well. If the actual earnings were below the budgeted target numbers, the stock price would drop and the shareholders would suffer. Besides, he believed that the actual revenues would increase dramatically in the near future and they could cover for the fraudulent revenue by underreporting these future revenues. He concluded that no one would get…The CEO and the CFO of Automation Company were both aware that the company’s controller was reporting fraudulent revenues. Upper-level executives are paid very large bonuses when the company meets the earnings goals established in the company’s budgets. While the CEO had pushed the CFO and controller to “make the numbers,” he had not told him to “make up the numbers.” Besides, he could plead ignorance if the fraud was ever discovered. The CFO knew he should prohibit the fraudulent reporting but also knew the importance of making the numbers established in the budget. He told himself that it wasn’t just for his bonus but for the stockholders as well. If the actual earnings were below the budgeted target numbers, the stock price would drop and the shareholders would suffer. Besides, he believed that the actual revenues would increase dramatically in the near future and they could cover for the fraudulent revenue by underreporting these future revenues. He concluded that no one would get…The CEO and the CFO of Automation Company were both aware that the company’s controller was reporting fraudulent revenues. Upper-level executives are paid very large bonuses when the company meets the earnings goals established in the company’s budgets. While the CEO had pushed the CFO and controller to “make the numbers,” he had not told him to “make up the numbers.” Besides, he could plead ignorance if the fraud was ever discovered. The CFO knew he should prohibit the fraudulent reporting but also knew the importance of making the numbers established in the budget. He told himself that it wasn’t just for his bonus but for the stockholders as well. If the actual earnings were below the budgeted target numbers, the stock price would drop and the shareholders would suffer. Besides, he believed that the actual revenues would increase dramatically in the near future and they could cover for the fraudulent revenue by underreporting these future revenues. He concluded that no one would get…
- Why have there have been so many business scandals mentioned in the media over the past few years? Have companies simply gotten worse, or have people become more sophisticated in identifying improper activity? What is the role of the Accountant? Sarbanes-Oxley, for example, has placed much more responsibility on the CEO and corporate officers? Are there additional laws that should be considered to ensure these scandals do not continue to occur? Should non-executives be held liable for corporate wrongdoing? in 200 words, please.Salim is the audit manager of a team engaged on the audit of a listed company. During his initial discussion with the chief executive officer (CEO) of the company, he was informed that pandemic depressed economic conditions have badly affected the company and its liquidity. Due to uncertainty about the future of the company, certain key employees have left including several staff members of accounting and finance department. Consequently, the accounting records are in a bad shape and the management is making efforts to complete the draft accounts quickly. CEO therefore requested Salim to carry out necessary accounting work and to help prepare the annual financial statements at a fee to be agreed mutually. - what Professional Accountants’ code of ethics that ues of in helping organization s, in the above situation?Salim is the audit manager of a team engaged on the audit of a listed company. During his initial discussion with the chief executive officer (CEO) of the company, he was informed that pandemic depressed economic conditions have badly affected the company and its liquidity. Due to uncertainty about the future of the company, certain key employees have left including several staff members of accounting and finance department. Consequently, the accounting records are in a bad shape and the management is making efforts to complete the draft accounts quickly. CEO therefore requested Salim to carry out necessary accounting work and to help prepare the annual financial statements at a fee to be agreed mutually. - How will support by auditor be provided on the basis of professional accountants' code ethics, in the above situation?
- Salim is the audit manager of a team engaged on the audit of a listed company. During his initial discussion with the chief executive officer (CEO) of the company, he was informed that pandemic depressed economic conditions have badly affected the company and its liquidity. Due to uncertainty about the future of the company, certain key employees have left including several staff members of accounting and finance department. Consequently, the accounting records are in a bad shape and the management is making efforts to complete the draft accounts quickly. CEO therefore requested Salim to carry out necessary accounting work and to help prepare the annual financial statements at a fee to be agreed mutually. - In the above situation, How does professional competence carefully help the organization?Salim is the audit manager of a team engaged on the audit of a listed company. During his initial discussion with the chief executive officer (CEO) of the company, he was informed that pandemic depressed economic conditions have badly affected the company and its liquidity. Due to uncertainty about the future of the company, certain key employees have left including several staff members of accounting and finance department. Consequently, the accounting records are in a bad shape and the management is making efforts to complete the draft accounts quickly. CEO therefore requested Salim to carry out necessary accounting work and to help prepare the annual financial statements at a fee to be agreed mutually. - what is Professional Accountants’ code of ethics, in the above situation?Salim is the audit manager of a team engaged on the audit of a listed company. During his initial discussion with the chief executive officer (CEO) of the company, he was informed that pandemic depressed economic conditions have badly affected the company and its liquidity. Due to uncertainty about the future of the company, certain key employees have left including several staff members of accounting and finance department. Consequently, the accounting records are in a bad shape and the management is making efforts to complete the draft accounts quickly. CEO therefore requested Salim to carry out necessary accounting work and to help prepare the annual financial statements at a fee to be agreed mutually. - What kind of support will the auditor provide in the case stipulated in the following case for the Rules of Ethics for Professional Accountants?
