Accounting and auditing firm The scandal's consequences would primarily be a professional embarrassment for auditing and accounting firms. The American Institute of Certified Public Accountants quickly altered the auditing standards of the accounting profession in the United States, prompting auditors to become more proactive in combating fraud. The shareholders
Eileen Foster was the Executive Vice President of Fraud Risk Management at Countrywide, and later served in the role of Senior Vice President of the Mortgage Fraud Investigation Division at Bank of America after the two companies merged (Foster, n.d.). It was her responsibility to investigate mortgage origination fraud and reporting suspicious activity to regulators and the company’s Board of Directors. After several years of seeing a lot of suspicious activity and blatant acts of fraud she found that the company was playing party to this activity. Any employee who reported fraud and wrongdoing to Employee Relations were being transferred, demoted, harassed or terminated. When Foster reported her concerns to Countrywide’s Internal audit to investigate, the company not only chose to conceal her allegations from Bank of America, but it also directed employee relations to investigate Foster for wrong doing.
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.
Edmonds, T. P., Tsay, B., & Olds, P. R. (2011). Fundamental managerial accounting concepts (6th ed.). New York, NY: McGraw-Hill
By prohibiting the use of material non-public information by those in a position of trust or authority, these laws are designed to ensure that investors have access to the same information and can make informed decisions when investing in the stock market. The Sarbanes-Oxley Act was enacted in 2002 in response to a number of corporate accounting scandals that had rocked the U.S. economy. It is intended to protect investors from fraudulent activities by ensuring that publicly traded companies provide accurate and reliable financial information. Under the Sarbanes-Oxley Act, the CEO and CFO of a publicly traded company must certify the accuracy of the financial statements filed with the SEC.
In 2002, the SEC adopted new rules and amendments to address public companies’ disclosure or release of certain financial information that is calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles. The accrual accounting is more popular and be widely used in business world because it produces more accurate and faithful financial statements that constitute better representation of actual circumstances than its main competitors. The major weakness of accrual accounting is that there is some time issue such like the time of occurred and time of recorded would probably be different and it increases the risk of financial information and the risk of correctness. Also, the accrual accounting generally cost more to operate compared with cash accounting
1. What factors in the WorldCom case support the conclusion that CEO Bernie Ebbers Knew about the financial statement fraud? What factors support his defense that he did not know about the fraud? Bernie Ebbers Knew about the financial statement fraud because he was the one who encourage others to go into financial fraud because of the stock prices were going down, which was affecting his marginal loan. For that reason, he was trying to sell his stock, but the board of Directors lent him $341 million, along with 2% interest rate.
This proves that throughout the case, Cendant Corporation wasn’t acting fully ethical nor with the desired fiduciary actions to their investors and the auditing team in this case being Ernst&Young. Aside from the trust being broken apart between both, there was never a sign of an internal control inside Cedant. Therefore, there shows that the corporate governance for Cendant Corporation didn’t have signs of existence as well. Most frauds that were occurring before the implementation of the SOX-2002, had top management such as in Cendant that didn’t have care for the ethical performances as much as in today’s corporate world with more regulations in hand by the government. At the end, Cendant had filings against them concerning their corporate governance
EXECUTIVE COMPENSATION Executive compensation is a broad term which comprises of financial compensation and non-financial rewards given to an executive from their firm for their services. This package is decided by a company’s Board of Directors (consisting of independent directors). It should be designed in a manner which incentivizes the executives and motivates them to perform in accordance with the company’s goals and its long term growth. These packages generally include a mix of short-term incentives (including salary, annual bonus, benefits, and perquisites) and long-term incentives (including stock options and restricted shares). E.g. Microsoft CEO Satya Nadella received a compensation package of $84.3 million for the software maker’s
Conclusion After reviewing the information obtained through this report, it highlights the lack of regulation and their accounting practices which took place within Lehman Brothers. The accounting practices that were used within the bank were set by the tone at the top and show that the CFO’s during the 2000’s and going forward had plenty of knowledge of the Repo 105 transactions and had no great will to do anything about. The thinking at the time seemed to be, that the company had used this accounting practice for so long, that if there was something wrong it would have come up by now no point rocking the boat.
The choice of inventory accounting methods, specifically for the case of FIFO and LIFO, has developed into a decision, which includes varying consequences and comes with specific implications and benefits, such as communicating private information with FIFO (Hughes, and Schwartz, 1988, p.42) or tax benefits for the choice of LIFO (Morse and Richardson, 1983, p.125). Every firm and manager has to face the decision of which accounting method to choose, and has to include several aspects into their decision making process and weigh the pros and cons in general. However, the empirical evidence (Frankel and Hsu, 2015, p.48) shows some controversies as to what inventory accounting methods firms decided to use in the past, even though the theory would
Background WorldCom, once known as one of the most powerful telecommunication organizations of the world, is now studied as a case of a fraudulent company that carried out unethical financial activities to cover its weakening position in the market. After some aggressive investment decisions, the company started to witness huge financial pressure. The management used various forged accounting entries to conceal its weakening position. Cynthia Cooper, Vice President Internal Audit, discovered the unethical activities and raised the issue with the management and relevant departments and received bitter responses. She carried out internal audits in her own capacity with her colleagues and compiled evidence against fraudulent activities.
Having different accounting standards in the world is a problem for multinational public limited companies and investors in order to be able to compare and evaluate financial statements (Doupnik & Perera, 2009). Due to the economic and financial scandals and meltdown in recent years, the pressure has been increased on some countries such as United States. Therefore, it must eliminate the gap between the International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP). The world of accounting diversity will have consequences on such changes, and the standard convergence of US GAAP with International Financial Reporting Standards also largely affect corporate management, investment, stock market, accounting personnel and accounting standard setters. In addition, the convergence of accounting standards will change the approach for international accounting harmonization to CPA and CFO, it affects the quality of international accounting quality standards and the effort made toward GAAP and IFRS convergence
In those countries that adopted these accounting standards mandatorily, there was a marked decrease in both the accounting and financial forecast errors. The results indicate that it is beneficial to apply these accounting standards as they lead to reduction in the errors associated with accounting and that explains its significance in this study. Carmona, S., & Trombetta, M. (2008). On the global acceptance of IAS/IFRS accounting standards: The logic and implications of the principles-based system. Journal of Accounting and Public Policy, 27(6), 455-461.
Tutorial 4 26 August 2014 Name: James Surname: Gilbert Student Number: 201404266 Tutorial Group: 1 The Relevance of Accounting History as an Academic Discipline.
