Abstract This paper addresses the question about whether accounting firms should act as consultants for the same companies that they audit. It uses the case of the accounting firm, Arthur Andersen, and its complicity in the Enron debacle to explore this question. The paper also addresses several larger issues on business and accounting ethics and looks at the need for reform in the accounting industry as a way of ensuring public confidence in the integrity of the accounting system.
From the Paper "In late 2001, Arthur Andersen, one of the world's largest accounting firms, found itself plunged into what will likely be remembered as one of this generations greatest business scandals. The scandal involved Enron Corp., one of America's most successful corporations, and the darling of investors, employees, and market analysts alike. Enron was accused of a multitude of ethical breeches, including deliberately misleading shareholders about the company's true financial status. Ultimately, Enron was found guilty of a number of financial misdeeds, went bankrupt, and Anderson's involvement in the scandal brought the ethics of accounting firms into question."
Discusses the Sarbanes-Oxley Act, which was designed as a response to the wave of corporate fraud cases that riddled the corporate landscape in America in 2002.
Abstract This paper looks at the Sarbanes-Oxley Act that was enacted in order to rectify the constant corporate scandals, fraud, and failures sweeping across the United States. The paper discusses the purpose of the Act, outlines its contents, explains exceptions to the Act that apply to foreign companies, and includes a timetable chart for its implementation. Issues such as independence and corporate responsibility, independence within the accounting profession, accountability and disclosure, and how the Act affects banking organizations that are non-public are also discussed in this paper.
From the Paper "The Sarbanes-Oxley Act is aimed at private companies by definition, as Section 108 on Accounting Standards implies. However, despite this seemingly straightforward definition, non-public banking companies are finding themselves under the jurisdiction of the Act based on their former standing with regard to SEC and FDIC regulations."
Abstract This paper examines the ethical and liability issues that non-profit corporations and for-profit businesses face and compares them. It looks at the potential for corruption that exists in non-profit organizations, the growing concern regarding this potential, and how ethical standards are being adopted by non-profit organizations as a result of these concerns. Also discussed is the growing realization among executives of for-profit businesses that corporations must project an ethical public image and the basic principles these corporations must adhere to in order to maintain public confidence.
From the Paper "There have been a lot of scandals lately regarding large for-profit businesses. These scandals stem from both ethical and legal issues. Many of these scandals have resulted in lawsuits and even criminal proceedings against those who have been involved with them. The true extent of corporate liability is just beginning to be seen in our society. We are watching the large corporations of this country ever more closely now, in order to make sure that they are acting in an ethical manner. The corporations, for their part, are being extra careful in their actions and words, fully aware of the liability that they are under should anything they say or do slip out of the socially acceptable line. With all of the focus on the ethics and liability of large corporations in our nation, the question naturally arises of how much of this, if any, applies to non-profit organizations."
Abstract This paper looks at how the Enron Corporation defrauded the public and its investors through the use of Special Purpose Entity transactions. The paper also looks at the role Enron's public relations office had in hiding Enron's ethical violations, the role Wall Street had in helping Enron defraud the public, as well as how various independent advisors assisted Enron in cheating its investors.
From the Paper "At these late points, Enron executives were calling on the public relations folks to fix their image, which was not possible. Because public relations? results are, well, public whereas accountings? results (barring failure and consequent exposure) are not, it was impossible for public relations at Enron to dig itself the kind of hole the rest of the company had. Any public relations staff who stayed on might have been seen as fools, or perhaps even liars, although many might have forgiven them trying to save their paychecks for a few more weeks since the were not doing anything illegal. One hopes."
Abstract This paper explains that the four basic financial statements are the balance sheet, the income statement, the cash flow statement, and the statement of stockholders' equity. This paper refers to each, in part, and then emphasizes the interrelations between them.
From the Paper "Resuming what I have argued for previously, there are two major arguments that demonstrate the interrelationship between the four basic financial statements. First of all, many of the values that are reflected in one statement generally find themselves in another. Even more so, there is a flow of information from one financial statement to another. As we have seen in the examples above, data from the cash flow statement is recorded on the statement of stockholders' equity or on the balance sheet."
Abstract Using his personal experience, the author of this paper explains when delegation is used in his business, how delegation could be used more effectively in planning, organizing, leading, and controlling a business, and describes what skills are needed for delegation.
From the Paper "It is said, "That which does not kill you will only make you stronger." In other words adversity can make you stronger. The implication is that it is only be true to a point and it is essential to know what that point is. It is important to be aware of your strengths and weaknesses and to have a firm grasp on your schedule so you can know when you should remain in control of a task and when to delegate it."
Abstract Following the collapse of Enron and WorldCom and the flow on effects to Arthur Anderson, legislatures world wide are recognising the need to reform the exposure of auditors and their firms to claims of negligence. This paper examines the merits of limiting the legal liability of auditors. The paper considers the measures recommended in Corporate Law Economic Reform Program (CLERP 9) and explores other practices adopted around the world.
From the Paper "Many of the principles setting out the legal liability of auditors are found in the common law. In the case Re: London & General Bank Ltd (No. 2) , the court held that an auditor must exercise reasonable care and skill, the level of which was dependant on the circumstances. These findings were confirmed in Re: Kingston Cotton Mill Company (No. 2) , where Lopes stated that the auditor was "...a watch-dog, but not a bloodhound" and that he was only required to investigate matters which aroused suspicion. These standards of reasonable care and skill are not static, they change with time, per the findings of Pennycuick J in Re: Thomas Gerrard & Son Ltd."
This paper discusses revenue and expense recognition methods, both standard and percentage of completion criteria, and the pros and cons of expensing stock options.
930 words (approx. 3.7 pages), 4 sources, APA, $ 33.95
Abstract This paper explains that expenses are recognized in the same period in which the benefits derived from those costs are recognized (the matching principle) and, thus, recognition of expenses is dictated by revenue recognition; therefore, associations between revenues and costs must be established. The author points out the pros of expensing options include providing a level playing field so that companies, which use cash bonuses, and companies, which use stock options, each have an expense on the income statement; however, there are many significant challenges for a company that expenses options. The paper recommends that manufacturing companies use accrual basis accounting and follow GAAP guidelines for revenue and expense recognition and, with regards to expensing stock options, the company might explore the use of stock awards instead of stock options.
Table of Contents
Introduction
Revenue and Expense Recognition Methods
Expensing of Stock Options
Recommendations
From the Paper "The revenue recognition and matching principles mentioned above are used under the accrual basis of accounting. Under cash-basis accounting, revenue is recorded only when cash is received, and expenses are recorded only when paid. However, GAAP requires accrual basis accounting because the cash basis often causes misleading financial statements. With accrual basis, revenue must be recognized in the accounting period in which it is earned, not just when money is exchanged."
Abstract The Federal National Mortgage Association or Fannie Mae, a government chartered company, provides mortgages for low-incomes persons. Following an introduction, this paper provides information about Fannie Mae, including background information on the corporate governance scandal where top executives manipulated accounting to hit targets and receive lucrative bonuses. Thirdly, recent changes in corporate governance including the Sarbanes Oxley Act are discussed. Additionally some recommended changes in corporate governance at Fannie Mae are included.
Paper Outline:
Introduction
Background of Fannie Mae Scandal
Issue
Recent Changes in Corporate Governance Which May Help Elevate Problems
Recommended Changes in Corporate Governance for Fannie Mae
Conclusion
References
From the Paper "Corporate governance, or the way a company is managed, can make or break that company as well as affect lenders, stockholders, and the market as a whole. Corporate governance is best defined as the means by which stockholders ensure that officers and directors will act in the best interest of the corporation instead of in their own best interest. Corporations set up a board of directors and appoint officers to run the company, although the true owners of the company are the stockholders whose money is at stake. It is the officers which play a substantial role in determining whether or not stockholders get a return on their investment. Stockholders entrust the officers to do what is right for the company as well as keep them informed of the financial state of the company through proper reporting. Although the corporation has significant control over the reporting process, there are strict rules which it is required to follow. Sometimes, however, accounting principles are violated by corporate officers in order to increase their own compensation in the form of bonuses".
Abstract This paper explains that investors can evaluate the desirability of investing in United Parcel Service (UPS) and Federal Express Corporation (FedEx) by examining their financial statements, such as the cash flow statements and the annual reports, which these publicly traded companies are required to file with the Securities and Exchange Commission (SEC). The author points out, when evaluating cash flow statements, it becomes apparent that many internal events affect the cash flow position of the organization such as an increase of expenses rising in comparison to the previous year in gas prices. The paper relates that analysis ratios, such as Current Ratio, Return on Sales, Earnings per Share (EPS), Debt Ratio, and Price to Earnings (PE) Ratio, are helpful in determining a company's solvency, liquidity and profitability; both companies are liquid and solvent because both companies' current assets (cash, accounts receivable, inventory and short-term investments) outweigh their short-term liabilities. Chart.
Table of Contents
The Cash Flow Statement - UPS
Cash Flow Statement - FedEx
Internal Events - UPS
Internal Events - FedEx
Revenue and Net Income
Financial Analysis Ratios
Discussion
From the Paper "The Income Statements generated by these organizations also help any outsider gain insight into these organizations' revenue and net income statistics. United Parcel Service Inc. conducts its financial statements through a calendar year, starting on January 1 and ending on December 31. Over the last couple of years, the company's revenue has increased by $5.31 billion. December 31, 2002, finished with an amount of $31,272,000,000 in total revenue, followed by $33,485,000,000 on December 31, 2003. The most recent revenue is of $36,582,000,000 for the end of last year, December 31, 2004. It would be extremely welcoming for UPS to maintain all of its revenue; however, there are other expenses and costs that the organization must pay accordingly, which leads to the anticipated number of Net Income. UPS' Net Income continues to grow along with its revenue. On the December 31, 2002, UPS' books show a net income of $3,182,000,000."
Abstract This paper describes the disastrous Enron accounting scandal and how it brought financial destruction to thousands of investors, as well as the resulting Sarbanes-Oxley Act, an act intended to protect investors by mandating the accuracy and reliability of corporate disclosures to the public. The paper recounts the rise of Enron and its financial ruin brought on by fraudulent investments and accounting practices. The paper further describes the Department of Justice investigation into the scandal, its implications, indictments in the scandal and the many important features of the Sarbanes-Oxley Act.
Outline
Introduction
Enron History
Enron's Fall
Implications of the Enron Scandal
The Sarbanes-Oxley Act
Conclusion
From the Paper "Imagine, one day you are gleefully planning for retirement, you've just received your retirement fund statement and your diligent savings has grown nicely over the years. In fact, you envision traveling the country, during your golden years, or perhaps taking that European cruise you've so dreamed about. Yes, you're finally seeing the light at the end of the tunnel, your careful savings is finally about to pay off. However, in the next moment, it's gone! Completely. Gone are your dreams of cross-country sight seeing. Gone are your dreams of cruising the Mediterranean. In place of these dreams is the nightmare of the reality that your retirement savings is now not worth the paper the statement is printed on. That nightmare is the reality many Enron investors had to face."
Abstract This paper explores the Sarbanes-Oxley Act of 2002 and the impact of the act on small businesses. As part of this review is an outline of the Sarbanes-Oxley Act of 2002 and an exploration of the importance of Sarbanes-Oxley conformity on the market and economy. It looks at the cost of implementation of internal controls and audit fees, provides a review of fraudulent behavior and a review of prior academic research. It also discusses the impact of Sarbanes-Oxley on small businesses and what, if any, is being done to help the small business community to conform to the new regulations.
Outline
Overview of Sarbanes-Oxley Act of 2002 (SOX)
Which Companies Need to Comply With Sarbanes-Oxley?
Why is The SOX Act of 2002 Significant?
How Can SOX Help Small Businesses
Information Technology Solutions for SOX Compliance
What is the Impact of SOX on Smaller Businesses?
Is There Any Help for Small Business Compliance?
Are There Significant Findings in Academic Research?
Finally - Fraudulent Behavior
Conclusion
From the Paper "One of the main focal points of SOX is to bring back investor confidence by forcing corporate accountability and giving the corporations the mechanisms to do so. Investor confidence is extremely important for the survival of the economy. As investor confidence declines so does the stock market and as a result we will also see a decline in the economy's health. When investors lose confidence in the market, consumers tend to spend less and less on big ticket items such as putting off buying a new car.6 If the economy continues to lose confidence the lack of big ticket purchases and the undervaluing of stock will begin to hurt businesses. "
Abstract International business is important to every business person today. Even if a company does not have international locations, it is necessary to stay afresh of the situation in the foreign currency exchange markets. By keeping abreast of these markets, a business can monitor their competition and perhaps even move internationally someday. This paper examines the various institutions and markets that are in place to help monitor international trade, including the International Monetary Fund, the World Bank and the gold standard.
From the Paper "The modern financial system is called the "floating currency" system. This have proved to be a more efficient system in most people's eyes, but there are some that think the system should be set back to the gold standard. Since 1976, the United States government no longer sets the gold value of a dollar. The price rises and falls in relation to the demand for the metal. During the time of the gold standard, it was actually illegal for any United States citizen to privately own gold. This was to ensure that there was not any accidental increase in the monetary system, which would cause an inflation (Pagewise 2002)."
