Abstract This paper examines how a series of high-profile business melt-downs in 2001, led by the Enron scandal ,have put the roles and responsibilities of the corporate management and the auditors in sharp focus. It looks at how the public outcry against the necessity of preventing such crises in future has led to stricter regulation and extensive debate about the responsibilities of the management and the auditors. It attempts to explain management's role and responsibilities versus that of the auditors and also discusses how the public's perception of the auditor's duties have differed over time.
Outline
The Management's Responsibilities
The Auditors? Responsibilities
Public's Perception of the Auditor's Duty
From the Paper "Although the auditors role as the corporate "watchdog" is desirable for ensuring compliance with the prescribed accounting standards, it must be remembered that the internal auditors and the audit committees role in detecting and preventing financial irregularities is limited unless the management facilitates their functioning. Some experts such as Manuel A. Tipgos feel that it is not possible to stop management fraud unless the management voluntarily imposes its code of ethics on itself since it owns the internal audit and the audit committees. (35-36). The Sarbanes-Oxley Act attempts to remedy this situation by expanding the role of the audit committee and making it responsible for appointing and overseeing the performance of the internal auditors. It also prohibits the auditors from performing non-audit functions for their audit clients."
Abstract This paper discusses auditor independence and disclosure and how they are strengthened by the Security and Exchange Commission (SEC). The paper discusses how, taken together, Sections 201 and 202 of the Sarbanes-Oxley Act in conjunction with Rule 101-3 of AICPA look to define the limits of independence of auditors. It also describes the purpose of the acts, as well as their exclusions.
Table of Contents:
Introduction
Assuring Auditor Independence in Section 201
Evaluating Non-Audit Services In Section 201
Summary
From the Paper "In defining Section 201 the SEC looked at factors that could potentially impede the independence of auditing firms. These factors were considered in the context of collusion, conflict of interest and the potential for influencing accounting of financial results to positively influence auditing results (Anandarajan, Kleinman, Palmon, 2008). The SEC considered all non-audit services and centered on nine specific service areas that are considered to be the most potentially damaging and limiting to auditor independence (Gramling, Karapanos, 2008)."
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."
Abstract This paper explains that, after it was discovered that several major corporations in the U.S. had committed accounting fraud, it became the responsibility of auditors to discover evidence of accounting fraud in businesses. The paper discusses the impact of Sarbanes Oxley as well as SAS 99 on auditors and on the companies they audit.
From the Paper "Many decisions in accounting and auditing involve judgment calls. Nevertheless, there are rules that cannot and should not be broken. Over the last several years a number of major publicly traded corporations in the United States have committed accounting fraud and as a result have filed for bankruptcy protection. John Weinberg, in "Economic Quarterly", comments that these bankruptcies have resulted in the loss of hundreds of billions of dollars in stock value, wiping out the life savings of numerous investors and putting tens of thousands of..."
Abstract This paper is an oral presentation of the findings of an independent auditor of the HealthSouth Corporation. The audit concerns a 300-million-dollar refund HealthSouth is seeking from the federal government on the over-inflated profits it reported on its assets. The auditor asserts that no indications of Medicare fraud were found and that the over-inflated profits reported by the company were a result of HealthSound projecting assets not truly expected to incur, as well as a refusal to take into consideration the costs of the company (reporting only money accrued, rather than actual profits. This, in turn, was facilitated by the bureaucratic nature of the medical industry, where reporting of costs, payment of bills, and administrative costs are often delayed because of the nature of health care providers. The paper concludes by stating that HealthSound has not been negatively impacted by the allegations of securities fraud and that it is, and will continue to be, a sound company because of the quality its product.
From the Paper "As a part of this presentation, I, as an independent auditor commissioned by the committee of the firm representing the HealthSouth Corporation, wish to make clear that the company I have just audited, though tarred and feathered by the modern media, is not nearly at fault as one might initially believe, given the nature of the following components peculiar to the health services and health care industry. Although HealthSouth's supposed irregularities may have been elided in the public imagination with corporations such as Enron, it is not an ?imaginary corporation.? Mistakes were made, but these mistakes should not cause individuals to forget the ongoing quality of care still provided by the company."
Tags: finances, accountant, bookkeeping, creditors, debt, survival, solvency, tenet, health, care, industry
Abstract This paper explains that the Sarbanes-Oxley Act came about because of the bankruptcies of Enron, Global Crossing, Adelphia, and WorldCom. These companies had hidden their true financial health from creditors and shareholders until an inability to meet financial commitments forced them to restate earnings that revealed massive losses. The author points out that a disadvantage of this Act is that the corporate sector in the United States is already sufficiently regulated, making it one of most tightly controlled in the world. The paper relates that the Sarbanes-Oxley Act restores the all-important role of the auditors as corporate "watchdogs", which is desirable for ensuring compliance with the prescribed accounting standards, and expands the role of the audit committee by making it responsible for appointing and overseeing the performance of the internal auditors.
Table of Contents
Introduction
Background
Accounting Problems that Led to Sarbanes-Oxley
Advantages of the Act
Disadvantages of the Act
Effect of the Act on the Future of Accounting Profession
Opinion
From the Paper "One of the provisions of Sarbanes-Oxley makes the chief executive officers (CEOs) and chief financial officers (CFOs) personally responsible for signing false accounts and financial statements. They can now get stiff jail terms for violating the law by signing false and misleading financial statements. Before Sarbanes-Oxley many CEOs and CFOs pleaded innocence when financial irregularities were revealed by claiming that they were unaware of the "cooking" of the books by their subordinates."
Abstract The Institute of Internal Auditors, founded by the New York Chapter in 1941, is the primary supporting organization of internal auditors today. This paper explores the organization's role and duties and looks at the principles it follows and tries to implement in its subjects.
From the Paper "The Institute serves its members in internal auditing, governance and internal control, IT audit, education and security for more than 120 countries. The IIA leads the world in certification, education, research and technological guidance for the profession. They are considered the profession's watchdog and resource on significant auditing issues around the globe. The IIA provides internal audit practitioners, executive management, boards of directors and audit committees with standards, guidance and information on best practices in internal auditing."
Abstract The paper discusses the background of Enron and of the Sarbanes-Oxley Act. The paper explains the main factors that contributed to Enron's bankruptcy that include the failure of corporate governance, high risk accounting transactions, inappropriate conflict of interest transactions and extensive undisclosed off-the-books activities. The paper also reveals the excessive compensation for company executives, the auditor independence and the financial and social ties between Enron and members of the Board of Directors.
Outline:
Enron's Background
Sarbanes-Oxley Act's Background
Failure of Corporate Governance
High Risk and Improper Accounting
Inappropriate Conflict of Interest Transactions
Extensive Undisclosed Off-the-Books Activities
Excessive Compensation for Company Executives
Auditor Independence
Board Independence
From the Paper "The deregulation of the energy market facilitated Enron's transformation from a regulated natural gas company into one of the world's largest energy traders. A major portion of its business was trades of derivatives. These transactions were extremely risky, complicated and expensive. Enron focused on three new global markets: water, international energy brokerage, and broadband communications. It had stakes in nearly 30,000 miles of gas pipeline, owned or had access to a 14,000-mile fiber optic network, and had a stake in electricity generating operations around the world."
Abstract This paper provides a basic financial analysis and evaluation of Church & Dwight Co., founded in 1846, the world's largest producer of sodium bicarbonate, also known as Baking Soda. It includes an industry and peer comparison in order to provide an objective conclusion and financial outlook based on the availability of historical and current public data.
Table of Contents
Abstract
Company Overview
Industry Competition
Industry Profile
Auditors Report
Recent News
Shareholder Analysis
Financial Evaluation
Solvency Analysis
Working Capital and Current Ratio
Accounts Receivable and Inventory Turnover
Debt Ratios
Ratio of Fixed Assets to Long Term Liabilities
Ratio of Liabilities to Stockholder's Equity
Profitability Analysis
Revenue Growth
Earnings per Share
Price/Earnings Ratio
Dividend Payouts
Return Ratios
Summary Analysis
References
Appendix A ? Ventureline Report
Appendix B ? First Call Earnings
Appendix C ? Calculations
From the Paper "An analysis of accounts receivable and inventory turnover is a valuable tool in detailing the solvency of a company. The accounts receivable turnover can be a critical indicator of cash flows and the amount of uncollected accounts. The ratio is computed by dividing net sales on account by the average net accounts receivable. The inventory turnover can be an indicator of how efficient a company may be managing inventory and is calculated by dividing the cost of goods sold by the average inventory. OneSource Information Service provides this data for Church and Dwight as well as for the industry among other valuable data points in the following data as of October 11, 2002."
Examines the role and responsibilities of the external auditor in detecting fraud. Discusses standards, definitions, costs and risks, causes and types of fraud, corporate disclosure and uses tables.
2,025 words (approx. 8.1 pages), 14 sources, 1999, $ 71.95
This research examines the role of the external auditor in the detection of fraud. The increasing prevalence of fraud, together with increasing criticism of the accounting profession for high-profile failures to detect such fraud, has led to the implementation of changes in the practice of auditing.
Background on the Issue
Generally Accepted Auditing Standards (GAAS) are developed and enforced by the American Institute of Certified Public Accountants (AICPA) for the public accounting profession. The Securities and Exchange Commission (SEC), however, also exercises responsibility with respect to the auditing of public companies, and conducts its own auditing enforcement activities. In recent years, the ..."
From the Paper "This report attempts to understand the role auditors may be expected to assume in the 1990s regarding the detection and reporting of fraud. This paper begins with an exploration of what constitutes fraud, how auditors can uncover fraud, and examines modifications in approach that could alleviate the problem of fraud in the future.
One of the obvious difficulties arising from auditors detecting fraud is the fact that fraud is an illegal act which can only be determined by a court. So what an auditor is looking for, therefore, is not fraud, per se, but the appearance of impropriety.
An audit is the independent examination of the financial statements of an ongoing entity. The auditor is expected to offer an opinion on said financial statements based on his ... "
Abstract This paper presents the changes that have arisen from the introduction of SAS 82. The author explains the expectation gap. The paper reviews moral problems and the difference between reasonable and an absolute assurance.
This paper discusses the shocking scandal at WorldCom, the Mississippi-based telecommunication company, which was considered to be scandal-free and profitable.
2,060 words (approx. 8.2 pages), 5 sources, MLA, $ 64.95
Abstract This paper explains that, compared to the sophisticated accounting techniques adopted by Enron to hide its real financial health, the "modus operandi" of the 'crooks' at WorldCom was relatively simple, involving the improper capitalization of expenses by re-characterizing certain operating expenses as capital assets, and the improper release of reserves held against operating expenses. The author points out that personal greed stands out as the single biggest reason for this crime. The paper relates that the continuing manipulation of WorldCom's financial statements remained undetected from as far back as 1999 to mid-2002 due to the failure of the system because the auditors, the "moral watchdogs," were largely unregulated, and the accounting profession had followed a long-held tradition of self-regulation.
Table of Contents
Facts
Background
How Was the Fraud Perpetrated?
Why Was the Fraud Committed?
Preventing and Detecting Fraud
Why the Fraud Remained Undetected at WorldCom?
Measures Needed to Prevent or Detect Fraud
Comments and Conclusion
From the Paper "In the 1990s, WorldCom entered into a number of long-term lease agreements with various third party telecommunication companies in order to gain access to their networks. According to the terms of the agreements, WorldCom was obliged to pay a fixed amount to the carriers, regardless of how much of the leased capacity was actually utilized by WorldCom. These lease payments were named "line costs" and as per the prevailing accounting principles should have been treated as "operating expenses" in the income statements of the company. By 2000, the optimistic growth projections in the telecomm sector had failed to materialize, and WorldCom's incomes could not keep pace with its rising expenses. If the company's declining income had become public at that stage, its share price that had reached a peak of $64 in 1999 would have fallen drastically."
Abstract This paper explains that mergers and acquisitions require a step-by-step process in order to be successful but, even then, the failure rate is astounding. The author points out that due diligence and in-house auditors must be used to make sure that the corporate cultures and compensation schemes of the target and acquirer companies are relatively close in structure or at least compatible because a failure to do so will torpedo the M&A at a very early stage. The paper relates that, from an international perspective, the acquirer must be aware of the target's national laws regarding taxation, work weeks and other human resources issues.
Table of Contents
Introduction
The Steps
Step 1: Goal Identification
Step 2: (If Sale) Packaging and Marketing
Step 3: If Acquisition Moving Forward, then Analysis and Structuring
Step 4: Negotiation
Step 5: Due Diligence
Step 6: Contract Negotiations
Step 7: Closing
Issues that Arise in M&A Negotiation
What Steps Make M&A Negotiations Successful
Differences in Negotiation in the U.S. and Abroad
Conclusion
From the Paper "One such summary tool asks the involved executives to prepare a potential target list detailing companies, their contacts, history, products/markets, differentia versus competitors, funding and financials (including revenues and profits, if known), employees, sales structure and any notes or source-citation, plus details on the current relationship with their own company. The other primary work product at this stage is a company overview of each target candidate that matches these criteria - carefully describing each company in greater detail including all of the above elements, plus its founders/investors, a summary of its acquisitions-criteria fit and an explanation of why this company is appealing under the current circumstances, plus, of course, a SWOT analysis."
Abstract This paper discusses the organizational roles of chief financial officers (CFO), comptrollers, treasurers, reimbursement directors and internal auditors within a health care setting. It discusses whether or not all of these positions are necessary in today's health care setting and why it is necessary to have multiple positions in a health care organization.
From the Paper "Kirkegaard (1997) proposes that the concept of liquidity is extremely familiar in the theory of accounting and financing. It is defined as having a direct relationship with the action of "paying." Enterprises or individuals are said to be liquid at a moment or within a period when they are able to pay their due debts now or within the period concerned. Payment can be made either in cash or by using references to cash. The daily language of accounting contains expressions such as "liquid capital" or simply "liquidity," terms that simply refer to means of payment that are easily accessible. In practice, "liquid capital" and "liquidity" can have three and only three forms. The ability to pay can be demonstrated by the presence of means of payment in the form of: cash holdings, deposits in bank accounts of various kinds, and prearranged rights to draw on credits of various kinds."
