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An Accountant's Response To The Stock Market Crash Of 1929

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An accountant commits fraud if he maintains false information about the sales in the company books, with an intention to knowingly increase the worth of a company’s profits.
An accountant who commits a fraudulent act can be either be civilly or criminally liable for both compensatory and punitive damages to any person who he should have reasonably foreseen as someone who could be injured. A fraudulent act is an act that has a false representation of a material fact, is made knowing that the fact is false, is made with the intention to deceive, and is relied on by the plaintiff. State law makes accountants criminally liable for certifying false documents, altering accounting records, using fake financial reports, giving false testimony, …show more content…

There are many statutes, laws, and principles that apply to negligence and fraud in accounting cases. Two very important securities laws were passed in response to the stock market crash of 1929. The first is the Securities Act of 1933 Act and Section 11 says that an accountant may be held accountable for omissions or misstatements of material facts in a registration statement. It extends to claims by anyone who acquires a security covered by the statement. A purchaser only needs to prove that there was a material misstatement or omission and that he lost money for the accountant to be liable. Accountants can use the due diligence defense to avoid Section 11 liability if an accountant can show that he reasonably believed that the financial statements were accurate and complete at the time he made them. A violator of Section 11 is subject to fines of up to ten thousand dollars and/or imprisonment of five years or less. The 1934 Act of the Federal Securities Law also assesses liability for negligence and fraud. Section 18 says that an accountant who makes false or misleading statements in any document, report, or registration …show more content…

Rule 10b–5 of this act states that an accountant is civilly liable if he acts with scienter, or intent, in making misstatements or omissions of material fact connecting to the purchase or sale of a financial asset. A violator of either Section 18 or Rule 10b–5 is subject to fines of up to five million dollars and/or imprisonment of up to twenty years. Another act, specifically for fraud, is RICO which extends criminal penalties for two or more racketeering acts that maintain, invest in, or operate businesses with criminal money or through criminal activity. As we learned in class, fraud is a racketeering act, so accountants must be aware of this statute. Blue Sky Laws are state laws that regulate the offer and sale of financial securities to protect people. The Sarbanes Oxley Act is an important act that was passed in response to the Enron Scandal. It established a new regulatory group, PCAOB, to oversee public company auditors. PCAOB is a five-member oversight group who protects investors in U.S. securities markets. They ensure that public companies’ financial statements are audited to the

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Following the Great Depression, there was a dire need for regulation and full disclosure of accounting records within the securities markets. “Some feel that insufficient and misleading financial statement information led to inflated stock prices and that this contributed to the stock market crash and the subsequent depression” (Spiceland 9). When investors did not have accurate financial information at their disposal, they were prone to making poor investing decisions. The Securities & Exchange Acts of 1933 and 1934 were the first pieces of legislature to require public companies to be audited quarterly and annually. These acts were designed to restore investor confidence in the markets.

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The Sarbanes-Oxley Act is very necessary act put in place to help investors. The Sarbanes-Oxley Act is an act put in place in the early 2000’s by Paul Sarbanes and Michael Oxley. The act was put in place to improve corporate governance and accountability (What is Sarbanes-Oxley Act (SOX)?). The Sarbanes-Oxley act has changed the financial side of corporations. This is because it added criminal penalties for misconduct within a business or corporate and accounting scandals.

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Introduction Accountants play a significant role in the world economy as professionals that prepare the financial documents that describe the health of a publicly traded business. As you and your co-workers are professionals, you get training and must be certified whether through college diploma or being a certified public accountant (CPA). Whether it is the tax forms prepared by tax accountants or CPAs that deal in financial statements, if these documents are inaccurate they may lead to significant instability in companies and financial markets. An important legal issue that can cause inaccuracies in financial forms is accounting malpractice. Accounting malpractice or accounting negligence is also accounting, and accountant liability which

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In 2009 in response to Madoff’s scandal the SEC created new regulations to help protect those who invest money, in hopes of preventing anything like this happening again. Among these new regulations are surprise exams, and companies and financial advisors must “hire an independent public accountant to conduct an annual "surprise exam" to verify those assets actually exist,” this is an important step in order to avoid false assets as in the Bernie Madoff case. In the Madoff case, an auditor named David Friehling was hired by Madoff’s company and misrepresented the company helping the scam continue, in order to avoid unethical behavior by auditors the SEC has added regulations. Among these are requiring companies to have audits preformed in order to make sure they are in compliance using “a Public Company Accounting Oversight Board-registered public accounting firm.” By requiring this the SEC can confirm that the auditors and accountants are reputable and ethical.

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According to 2014 Report to the Nation on Occupational Fraud and Abuse, only 9% of cases involve financial statements fraud, but the 9% has the biggest financial impact, costing over one million loss (2). To prevent this type of fraud, owner or manager who have not reconciled the statement, should hire an outside accountant.

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As stated in Section 1101 and cited as “Corporate Fraud Accountability Act of 2002,” it promulgates certain penalties against accomplices of fraudulent activities, such as the altering destroying, mutilating or concealing documents or objects, with the intention to “impair” or influence the “integrity” or availability of a certain resource for legal matters. The penalty includes the 20 years of imprisonment, freezing of accounts and issuance of order subject to court investigation (“Sec. 1103, as cited in “Title XI” 64). Accountability is highly important in demanding certain obligations from businesses and organizations in regard to their honest transactions and deals for public trust and confidence of the stakeholders. One good way in order

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Forensic Accounting: Dr. Larry Crumbly (2017) sees forensic accounting as a specialty area of accounting that describes engagements that result from actual or anticipated disputes or litigations. In general terms, it is a practice that invites use of accounting skills to investigate fraud and malpractices in the corporate space and bureaucracies, and analyze information drawn from such investigations for the purposes of use in legal proceedings. According to the Forensic CPA Society, there are numerous types of forensic accounting engagements especially when it comes to civil litigations and disputes. These engagements include: Calculating and quantifying losses and economic damages, whether suffered as a consequence of extortion and/or breach

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Although there is a possibility that no one will know I “cooked the books,” that is no justification for unethical practices. In my line of work, I am expected to act with integrity at all times. Responsibilities (ET Section 52 – Article I) – “Members also have a continuing responsibility to cooperate with each other to improve the art of accounting, maintain the public's confidence, and carry out the profession's special responsibilities for self-governance.” I would be violating this principle by not providing the public with reliable and accurate information that they can be confident in when making their assessments of companies. By making the false transactions, I will make the company appear more profitable that it really is which could lead to misguided interpretations for financial statement

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AS 8.04 Audit Risk The audit risk is that the auditor expresses inadequate audit opinions for the material misstatement of financial statements. The financial statements are not consistent with the true situation. In this case, the auditors failed to find ZZZZ Best’s insurance restoration trades was false and the contracts were completely fictitious. Minkow used the fake insurance restoration contracts to book the profits and earnings.

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The U.S. Securities and Exchange (SEC) was created in response to the 1929 stock market crash which was responsible for monitoring and regulating the stock market after the crash which led to the Great Depression. Since the creation of U.S. Securities and Exchange agency multiple laws and regulations were added to help maintain the balance and oversight of the exchanges and the stock market. Additional laws and regulations have been added as a result, in condition or incident within the stock market, corporations, and securities. Several scandals since 2002 have led to an increase of laws and regulations, these laws have led to controversial topics dealing with the costs associated with enacting regulations. Questioning, whether we are over

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Arthur Andersen From honesty to fraud During 2002, the reputation of honesty and integrity at Arthur Andersen LLP, was plummeted to the bottom. The public trust in the company's ability to perform audits with the publics interest at heart had completely vanished. The firm that for centuries had been a leader in setting audit standards was now being charged for obstructing of justice and their right to perform audits of SEC-registered companies was revoked when it became known how involved they had been in the Enron scandal, insert text with what they did (or did they give it up themselves? FOOTNOTE?). The scandal was not the first Andersen LLP were involved it.

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Section 1: Fraudulent financial reporting is the premeditated and calculated falsification or omission of financial information/documents such as: balance sheets, income statements, etc. The ultimate goal for a firm to falsify financial reports is to improve their profitability and ultimately their performance of the firm. By firms falsifying and omitting information from their financial reports, they are misrepresenting themselves to their investors. If a firm looks as if they are performing well, then more people will want to invest in the firm. The people who are being hurt at the end of the day are not the people at the top of the firm, CEOs and management, the people who are being hurt are the investors that will untimely lose their investments and the employees who work at the firm.

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Enron was charged with securities fraud, such as fraudulent manipulation of publicly reported financial results and lying to SEC. And Enron was one of Arthur Andersen Public Accounting Firm’s clients. In this article, I would like to be more concern in the auditing and accounting

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