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accounting standard in the business world
the history and development of accounting standards
the history and development of accounting standards
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Manipulating Earnings With over twenty years of work experience I have witnessed managers at all levels utilize various tricks to manipulate short-term quarterly earnings. It seems like most managers have different views on what is ethical and unethical when it comes to managing short-term earnings and tend to use questionable practices to meet company numbers. This has been confirmed from The Dangerous Morality of Managing Earnings case study as according to Gibson the accounting practice of offering a fourth quarter sales incentive and allowing customers 120 days to pay in an attempt to increase fourth quarter sales numbers was posed to the managers in the case study and returned results indicating that the practice was viewed as ethical, …show more content…
It’s a wonder that anybody invests in businesses both big and small and public and private with managements ability to manipulate the earnings numbers in anyway they see fit. As an investor it would be nice to see earnings reports standardized and audited to prevent manipulation so that stakeholders have the information necessary to make informed decisions. A prime example of a company that manipulated and skewed its numbers for years was Qwest Communications with Joe Nacchio at the helm. I have friends and family that have worked at Qwest Communications for years and they lost significant amounts of money courtesy of Joe Nacchio who altered the books to show that the company was performing better than it really was and because of his actions the company’s stock nose dived when the fraud was …show more content…
After reading about some of the ways short-term earnings are manipulated and reading about the case brought against Qwest Communications Joe Nacchio I wonder if it would ever be possible for an honest person to head a giant corporation or would the pressure to satisfy Wall Street and the various share holders ultimately prevail by turning the honest person into a manipulator all for the sake of the numbers. I say let the cards fall where they fall and if a company has a bad quarter or a bad year so be it and if the company survives and makes a turn around you know that it is being done right. If everybody were to play by the same set of rules life would be so much
Almost two years ago the company where I am employed, RGIS LLC, mandated a pay policy change for the hourly employees. Hourly employees make up over 95% of RGIS’s labor staff. This new, four-tier payment scale, aptly named “Pay 4 Performance” (p4), ultimately affected thousands of employees who had been with the company for years and had high pay rates simply as a result of longevity. The four new levels would have a matching pay scale based upon each individual employee’s production. These levels are what RGIS calls an ASET level: Auditor, Specialist, Expert, and TopGun, with each level advancing to a higher production and pay rank, respectively (Company).
DHALIWAL, D. S., GLEASON, C. A., & MILLS, L. F. (2004). Last-Chance Earnings Management: Using the Tax Expense to Meet Analysts' Forecasts. Contemporary Accounting Research, 21(2), 431-459.
Harvard Business School case 274-116. Cooper Industries, Inc. Retrieved on August 31, 2008, from University of Phoenix, Resource, FIN/545 web site: https://mycampus.phoenix.edu/secure/resource/resource
Throughout the years, the news covered stories of corporate scandals involving accounting unethical practices. These unethical corporate acts had a tremendous negative impact on these company’s stockholders, investors, employees and the whole U.S. economy. Most of these scandals would have been prevented, if the independent audits of these companies were conducted in an ethical manner. With this in mind, two corporate scandals will be the subjects of further review to understand that an auditor might encounter ethical dilemmas, if independence and objectivity are not part of the audit process.
Here, the Narrator tries to justify that morality need only stretch so far and “beyond that point” that there is nothing to be done. Whereas that point where “common sense bids the soul be rid of it” does not exist for the authentic George Bailey, the Narrator’s Wall Street ethics are artificial and self-serving. As such, the Narrator’s overtly pragmatic approach to morality on Wall Street counters George Bailey’s self-sacrificing approach Capra conveys in Bedford Falls. Through this pragmatic approach, the Narrator sees charity as an opportunity for protecting himself: “Aside from higher considerations, charity often operates as a vastly wise and prudent principle – a great safeguard to its possessor” (Melville 93). While the Narrator recognizes
... tempted to falsely inflate earnings is to take away their personal gains, if the company's stocks go up. I believe that when upper level management has too much incentive based on personal financial gain, which is directly based on the performance of the company; it compromises their judgments. I think that upper level management should not be allowed to receive stock options or to even own stock in the company as the financial statements would provide a neutral, bias-free report. Management would have no reason to "cook the books." I also feel that any management who still decides to falsify documents needs to be held more accountable for their actions and receive tougher punishments. I think that these strict guidelines would help the people in the United States and people all over the world feel more confident in investing their money into the stock market.
This paper will discuss these steps in detail. Because I work at home, I am not currently involved in any of the steps of the accounting cycle. The examples I give in this paper will be from various jobs I have held in the past.
Worldcom was a telecommunications company that merged with MCI in 1997 and was renamed MCI Worldcom. Worldcom was the United States second largest long distance phone carrier, until the accounting scandal in 2002. In 2002, a lady named Cynthia Cooper found discrepancies in their accounting. Someone was cooking the books by moving money around and recording it in places it should not be.
Harvey Hegarty and Henry P Sims, Jr., there are many different factors that increase the likelihood of a manager taking unethical decisions. For instance, the article mentions that unethical decisions or actions are more likely to occur when they are rewarded. Rewards such as bonuses and promotions may be factors that could induce a manager to act unethically. Also, punishments could also be another aspect that could potentially encourage a manager to manipulate data. Manipulation of data may allow managers to avoid punishments along with negative consequences. Moreover, the article mentions pressure as another possible motivator which could trigger unethical behavior from managers. In situations where the manager is under pressure to meet a sales target, the manager may decide to unethically alter reports in order to meet the expected goal. As a result of these types of unethical behaviors, organizations may be affected from the inaccurate input received from middle level managers. Inaccurate information may create miscommunication, conflicts, and misguided data
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 regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
The ethical dilemma in this case is one that Daniel Potter is faced with. Daniel is a staff
(i) Judgement and materiality play a significant role in helping to ensure that the selection of accounting policies in presenting the financial statements for a true and fair picture of the company’s financials. This means that entities should provide the financial statements with comparability, consistency and clarity to users of these statements. Entities must follow accounting policies required by IFRS and AASB should be relevant to particular circumstance.
Positive accounting theory is arguably an explanatory of accounting practice; economic based theory. RL Watts and JL Zimmerman developed positive accounting theory in 1980s at the William E School of Administration at the Rochester University. People do not know what they want at times. So there are different options available to accountants. There are some logical facts to choose one specific method. On choosing one specific method, accountants will maximize their own benefit first, and then company benefit, shareholder benefit and at last social benefits. A specific method will allow accountants to feel better to do their work as they like them the way they know and they way they are best at doing (Jayne Godfrey). For instance, accountant will write accumulated depreciation on asset value side for big company whereas when a poor balance sheet, it is better to put accumulated depreciation on credit side, so the company will have extra money in their debit (Ken Leo, John Hoggett, 2012). Accountants will use choice of accounting method depending on the situation. Positive accounting theory consists of different types of hypothesis such as bonus plan, political cost and debt hypothesis, which allow the managers to choose one specific method over another. It is accountants’ theory and it is descriptive and accountants will tell what to record.
Ethics has become a more central issue in the field of accounting in the past decade, due to the Enron scandal and other similar ethics breaches at large corporations. One of the results of this newfound focus on ethics is the recent rewriting of the Code of Ethics of the American Institute of Certified Public Accountants (AICPA, which is the American national association for certified public accountants), in order to better educate practicing accountants on acceptable practice. Another is a greater interest in how ethics are incorporated into the education of prospective accountants, raising questions such as whether addressing ethics within and across a variety of accounting courses is adequate, or if a separate course devoted entirely to
This report will cover the meaning of Financial Ethics, what kind of accounting practices are considered to be unethical and how a company can overcome problems. In addition this report talks about the use of EBITDA in accounting practices and how EBITDA can be manipulated to show a company’s performance as good when in fact they are suffering. The report will also show how EBITDA and financial ethics can be intertwined with each other.