Thursday, February 21, 2019

Accounting Scandals

The events that followed had worldwide implications and were analyzed ex ecstasysively in the media as well as In g e verywherenment circles. Experts pointed their fingers at a soma of diametric reasons that led to the massive fraud in argumentation and bill f atomic number 18s in the Enron collapse. One theory put forth by Alex someone of the New York Times was that the focus that analysts, Investors and executives place on quarterly pay as a companys success indicator began to take precedence over the ethics of executives and accountants (Roberts 808). In PaulCraig Roberts review of Forenoons book, he disagrees with Forenoons contention, or at least(prenominal) points out the holes that he sees with that logic. Roberts points out that the scapegoats Person cites as the root authors of the scandals (quarterly earnings, germinate options. And price competition between method of be firms) were In fact yester mean solar days reforms tendency upon increasing the protection of unified investors (old. ). Person posits that a cult of the quarterly earnings developed, which in some cases caused executives and accountants to trade respectable history practice for the healthy appearance of the company.Roberts rebuttal points out that quarterly earnings were the solving of a reform that desire to provide investors with more timely instruction active the financial condition of companies. Roberts also mentioned how story had traditionally relied on character and internal censure to moderate fair practices. This finale was establish upon a pay scale according to seniority. further in the sasss the FTC changed the business relationship kitchen-gardening to one where partners were not paid by seniority, but by how oftentimes business they could bring to the firm.Conflicts of interest were also introduced into this ultra when bill firms began to consult with the businesses they were supposed to be auditing. (old. ) Roberts makes it clear that he bel ieves federal formulas turn out a lot to do with the scandals that occurred. He seems to feel that a culture of honesty and integrity in the business and method of accounting professions Is the most hard-hitting way to curb shady business dealing. Roberts even analogies that standard accounting practices are alike door gyres.They keep honest people honest. scarce they cannot prevent fraud any more than a door lock can prevent favorable entry. (old. . Another interesting perspective suggests that executives are possible to commit more fraud as the expected cost of committing fraud decline (How to Clean up F-4). The condition infers that in the sasss when much of the fraud was occurring, the cost of getting caught was so low that fraud likely summationd. It also analyzes the U. S. Crestless securities industry In ten , wanly grew ostentatiously T a rate Tanat Tar outpaced the growth in resources at the second base (old. ). on that point was also an increase in corporati ons with a large numerate of intangible assets much(prenominal) as telecommunications. The aforementioned editorial thinks that a companys intangible assets make it harder to detect fraud than in corporations with tangible assets like nutrition and textiles. To bolster the point of the editorial, it is further noted that most of the high write accounting scandals in the sasss occurred in companies with intangible assets.This editorial seems to imply that sluttish regulations are the reason for increased fraud, and ultimately that an increase in regulation will decrease fraud. This conclusion is in stark contrast to Roberts article mentioned previously. But they represent opinions on dickens ends of the spectrum when placing blame for the accounting scandals of the sasss and sasss. (old. ) succession the reasons for the accounting scandals are infinite in number, the somewhat opposing viewpoints of these two articles shed light on a number of possibilities.What seems to be co ncord upon throughout two articles is that no matter the condition of the market or the regulations in place, lapses in ethical Judgment are the root cause of most of these situations. This strongly suggests that the power to avoid another round of scandals like the ones experienced in the sasss lies in the individual accountant or business executive to k presently the ethical standards to which he is held, and to abide by them. There were a number of effects that the accounting scandals caused on bodied businesses in the United States and worldwide.The main issue was that confide in humankind companies waned. Investors polled after(prenominal) the Enron scandal said that even after certain regulations were introduced, they had lingering doubts virtually the industry integrity (Green-Morale). This issue of universal trust was a serious, yet by and large superficial view of the state of corporate business and accounting. Some feared that an overreaction to the accounting indus try would create bad public policy (How to Clean Up F-4). And to this day debate goes on about the pros and cons of the Serbians- entirely serve of 2002.Aside from the public policy revisions, the market number following the Enron scandal seem to indicate that there was very little effect on the actual market itself. One course after the Enron scandal first came to light, the S&P euchre declined by 28. 3 percent. Although this initially appears like a direct result of the accounting scandal, analysis of world markets at the time tell a different story. At the same time as the S&P 500 downturn, Britains FETES declined 27. 5 percent, Frances CA declined 34. 9 percent, and Germanys ADDAX declined 36. 8 percent (old. . These total indicate that there was a world-wide fluctuation in the market, even in countries not beset by an accounting scandal. Other possibilities for this downturn were considered likely, such as a slowdown in economic activity, excess force in the worldwide te lecommunications market, and uncertainty over terrorism and Iraq (old. ). Further record that the market was not directly affected by the scandals is leaned from the movements of stock prices in the telecommunications industry, where a large number of the scandals occurred.Before the scandals were brought to light, the Nasdaq Telecoms Index had declined by 80 percent from a high in March 2000. (old. ). This indicates that there was a braggart(a) downturn in the telecommunications market before the scandals occurred. If the focus is narrowed in even Turner, tons tale upon ten actual companies Tanat suffered Trot scandals, ten numbers continue to support the idea that the market was declining before the scandals occurred. In August 2000, Enrons stock price peaked at $90. By October 15, 2001 , the outlive trading day before the scandal broke, Enron stock had already fall to $33 a share.This indicates a 2/3 drop in value before any hint of scandal had reached the public. So, while it is sure likely that the scandals had an initial effect on the market, in the long bourn there was already a downturn unrelated to the accounting scandals. homogeneous to the effects to corporate business, the effects to the accounting industry father been more often than not related to image. A large effort was made to restore the public trust in accounting. One accounting industry insider recognized that they Molted the trust and government agency of Linens and they need to get that back (Green- Morale). Many in the accounting field expressed concerned about a congressional bring on to Judgment in trying to make the whole problem exclusively an accountants problem (Taylor old). Whether or not it was a rush to Judgment, the federal governance made some drastic changes that affect the accounting industry to this day. close to notably is the Serbians-Solely Act of 2002, which was signed into law and created a body whose fillet of sole responsibility was the regulation of a ccounting firms that edited publicly traded companies.When it was initially introduced, the Serbians- Solely Act was be companies one thousand millions of dollars to initiate and maintain deference. An annual look into is through by Financial Executives International to track how much money it is costing companies to comply with Serbians-Solely, specifically section 404. There most recent survey of 2007 noted that compliance fees among companies with market capitalizations of $75 million were $2. 9 million during fiscal course 2006. This is a 23 percent drop from year 2005, and a 35 percent drop from the initiation of Serbians-Solely in 2002 ( give Survey ). While companies are increasing their efficiency in regards to compliance with Serbians-Solely, it has still put a large strain on the accounting industry. The FEE Survey seems to indicate that efficiency will likely increase and then level off, with companies having an annual expense that includes compliance fees related to Serbians-Solely. Whether this Act is too much government regulation is arguable on both sides. But it did accomplish a larger goal, which was to begin to restore confidence in the accounting profession to the public.Another significant population that was affected by the accounting scandals was the academic side. The heads of accounting programs throughout the country initially feared set out enrollments due to the accounting scandals. But figures seem to indicate that there was in reality an increase in enrollment from 2002 to 2003 (Dotard 59). Many programs offered new courses as a direct result of the scandals. These courses involved such topics as fraud detection, corporate governance and ethics (old. ). Many programs also offered presentations, seminars, and lectures with an increased emphasis on professional ethics.A survey done by the American Institute of Spas sought to gauge student attitudes towards accounting after the scandals. The survey familiarly run aground that the more educated students were about the accounting scandals, the more positive their attitudes were. This suggested that undecided communication and straight talk Could improve student attitudes (old. ). It would seem that numbers wise, the accounting scandal has not affected enrollments In accounting programs In a gallants way. IT anything, ten scandals nave served to opening dialogue with students about the importance of ethical standards and fraud revelation.The firm that I work at, Crower Cheek, was not specifically established by some of these changes implemented, but was affected in a general way by the change in business and accounting culture that occurred. The business and accounting industries as a whole came through the aboriginal sasss relatively unscathed. Sure there was major damage done to the public image of both professions, but they have generally recovered and have continued to comply with the new regulations resulting from the Serbians-Solely Act and other SEC provisions. But there are a number of strives that have come about as a result of the scandals and subsequent government action.More skepticism is being brought into the audit process. Companies are considering how fraud could occur even if theres no distinction it is there. Also, investors are becoming better-educated about corporate financial statements And are not putting so much credence in the views of media pundits and analysts (Allen 7). Students who are considering or have chosen accounting as a profession now have an increased dialogue concerning ethics, fraud, and the consequences thereof in a corporate scandal. Overall this increased dialogue seems o be the most impartial method to prevent future scandals.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.