...Legality and Ethicality of Financial Reporting 2-25-2013 Ethics 376 Phoenix University Unethical Practices are forbidden in every industry but at the same time they are also performed. Unethical practices occur when a business does “not conform to approved standards of social or professional behavior”. ("The free dictionary,") There are many situations that can lead to unethical practices and behaviors within the accounting profession. The Sarbanes Oxley Act of 2002 was put into effect to prevent a lot of these unethical practices. In every business owner’s life, there comes a time when a decision must be made, that if is made in favor of the company and/or for personal benefit will be considered unethical. The business owner is the person who sets the standard for his/her company. He/she is the person who sets up guidelines that demonstrate the contrast between ethical and unethical values and behavior, establishing the first step in creating a company culture emphasizing and reinforcing ethical standards. In the accounting industry, professionals not only have the standard practices of accounting but also, board accountancy rules, such as SOX and GAAP, when creating ethical standards. Federal and state laws play a big consideration during this time. Such a time came for CFO of Excello Telecommunications when he considered inappropriately posting a $2.1 million transaction to boost year-end earnings. At the end of 2010, Excello...
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...obstacles facing the accounting profession with the convergence towards a globally accepted accounting reporting structure and a global ethics structure. Today’s economy is becoming globally smaller and more importantly the economy from all fronts is becoming more co-dependent on one another from a domestic and international perspective regarding finance, raw materials, IT, and labor talent. Some of the challenges facing the accounting profession as move towards a global standard is how do we ensure the information are reliable? Many companies in various parts of the world have different reasons/motives for how financial information is compiled and distributed due to things such as government or other political/social reasons and influences. Another large issue facing accountants would be what is acceptable in Country A may be unacceptable from an ethical standpoint to Country B. An example of this, IGAAP is less stringent than U.S. GAAP regarding certain disclosures, therefore, how will the information be disclosed in order for investors and creditors to make informed decisions. From an ethical standpoint will companies chose to use IGAAP because it is less stringent and the disclosure will be less disclosed than it is today. Finally the idea of enforceability, in certain countries, will the Commission actually have authority to hold companies accountable for misleading, fraudulent or inaccurate disclosures or unethical behavior. What jurisdictional powers will be given and...
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...Travel Systems Jennifer Aponte Professor Bunney Schmidt ACC 562 May 24, 2015 Week 7 assignment Fraud is a major problem for organizations all over as it involves theft and fraudulent financial statements. As the number of individuals involved increases, fraud expands and worsen within a company since there are more people supporting the wrong acts instead of doing what is right. Cardillo Travel Systems was the largest company in the travel agency industry in the 1980’s where it was first listed on the national stock exchange. The CEO of the company was a businessman from Los Angeles, CA named Walter Rognlien and his wife, Esther Lawrence was the President and Chief Operating Officer. These individuals were mainly concerned with doing whatever needed to get done to ensure that the entity’s financial records reflect successful information. As the top executive of Cardillo, Rognlien pressured and manipulated the controller of the company, accountants and 2 partners of public accounting firms. He wanted to conceal the actual nature of a fraudulent entry in the organization’s accounting records which ended up being unsuccessful. Luckily, not all of his employees obeyed his requests to cheat the system and the Touche Ross, the auditing firm hired by Cardillo was very careful to identify the fraudulent activity and Rognlien did not get too far with his scheme. The SEC was eventually notified and Cardillo Travel Systems eventually collapsed in 1986 and the company had to file...
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...and Audit Enforcement ACC 599 – Graduate Accounting Capstone QUESTION #1 After so many scandals in regards to financial frauds, Sarbanes-Oxley Act Section 404 mandates that all publicly-traded companies must establish internal controls and procedures for financial reporting and must document, test and maintain those controls and procedures to ensure their effectiveness. Non-for-profit healthcare organizations do not hold themselves to the same standards as the for-profit organizations. Although whether SOX guidelines apply to businesses in the healthcare industry depends on whether the business is a for-profit or non-for-profit organization, some voluntarily adopt SOX in an effort to strengthen internal management controls and increase the quality of healthcare financial reporting (Lohrey, n.d., ¶1). Non-for-profit organizations could certainly benefit from the SOX Section 404 to help reduce the possibilities of corporate fraud by increasing the stringency of procedures and requirements for financial reporting. Many health care executives and board members have concluded that SOX created a new benchmark for best practices, as well as provided extra protection from liability by evidencing direct board attention and oversight of organization compliance (Kusserow, 2013, ¶1). Without audit committees, non-for-profit organizations are at higher risk of financial disaster. Following the SOX compliances can be very beneficial for the non-for-profit healthcare businesses because...
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...went through his accounts over the years).(1) Mr. Friehling flagrantly and purposely violated provisions of the American Institute of Certified Public Accountants’ Code of Professional Conduct,(2) Generally Accepted Auditing Standards,(3) promulgations of the Public Company Accounting Oversight Board and Securities and Exchange Commission, and other applicable laws, regulations, rules, and guidelines. Mr. Friehling is a former Certified Public Accountant in New York State; he had a modest office with a total of three employees in suburban New City, NY. Mr. Madoff claimed to manage $65 billion in resources…how could what was essentially a one-person practice audit financial statements of that magnitude? The blatantly obvious answer is that Mr. Friehling could not. After accepting an engagement, the initial task for any CPA firm would be to establish an audit plan, which would plainly show that many auditors would be required for that type of engagement. There were countless opportunities for numerous governing bodies to uncover this scam and potentially save investors billions of dollars. The fact that so many egregious violations occurred over such a lengthy period of time without any meaningful investigations is astounding to the average person, let alone professionals in the industry. The AICPA’s Code of Professional Conduct specifically states that members...
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...Running Head: HIGH-RISK AUDIT CLIENT Assignment 4: Eastman Kodak Sarah Hescox Instructor: Mrs. Ashley Braun Harper, MS, CPA Advanced Auditing 06/16/2013 HIGH-RISK AUDIT CLIENT Current Financial Condition Based on its most recent quarterly report, that was issued April 29, 2013, Eastman Kodak’s current financial position seems strong with a net earnings of 283 million compared to the previous year’s loss of 366 million, however provided additional information, it is actually less than favorable. Kodak’s Short-term borrowings and current portion of long-term debt increased by over 150 million from the previous years, and its goodwill value decreased almost 100 million due to the decreasing value of the patented technology. I think an area of concern that would be a “red flag” for its public accounting firm to consider would be that in future periods, not only will Kodak have to make enough profit to sustain itself, but it also has legal responsibilities to pay back loans under the Junior DIP credit agreement and the Amended and Restated Senior DIP Credit Agreement, however, in Kodak’s quarterly report, they state “There can be no assurance that the Company will be able to meet the requirements under our Amended and Restated Senior DIP Credit Agreement, the Junior DIP Credit Agreement or the emergence credit facility” (Kodak, 2013). Another red flag for auditors to consider would be Kodak’s statement that “Kodak is developing a strategic plan for the ongoing operation...
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...CHAPTER 1 AUDITING AND THE PUBLIC ACCOUNTING PROFESSION – INTEGRITY OF FINANCIAL REPORTING |LEARNING CHECK | 1. SEVERAL COMMON ATTRIBUTES OF ACTIVITIES DEFINED AS AUDITING ARE (A) SYSTEMATIC PROCESS, (B) OBJECTIVELY OBTAINING AND EVALUATING EVIDENCE, (C) ASSERTIONS ABOUT ECONOMIC ACTIONS AND EVENTS, (D) DEGREE OF CORRESPONDENCE, (E) ESTABLISHED CRITERIA, (F) COMMUNICATING THE RESULTS, AND (G) INTERESTED USERS. 2. A financial statement audit involves obtaining and evaluating evidence about an entity's financial statements for the purpose of expressing an opinion on whether the statements are presented fairly in conformity with established criteria--usually GAAP. Thus, the nature of the auditor's report is an opinion on the fairness of the financial statement presentation. A compliance audit involves obtaining and evaluating evidence to determine whether certain financial or operating activities of an entity conform to specified conditions, rules, or regulations. A report on a compliance audit takes the form of a summary of findings or assurance regarding degree of compliance. An operational audit involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity's operating activities in relation to specified objectives. Reports on such audits include an assessment of efficiency and effectiveness and recommendations for improvements. 3. Independent auditors are individual practitioners or members of public...
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...Diamond Foods Financial Fraud Scandal Adrienne M Somers David F McCormick Acct 320 February 27 2012 In April 2011, Diamond Food Inc (DMND), the nation's largest walnut processor and maker of Emerald nuts announced plans to buy Pringles from Proctor and Gamble for $1.5 billion in stock (Reuters, 2012). This move was part of the company's aggressive growth strategy to become a leader of the snack food industry. Former chief executive officer, Michael Mendes, and former chief financial officer, Steven Neil, spearheaded this effort. However, plans were postponed as questions arose about two large payments that were made to walnut growers in August of 2010 and September 2011 for $20 million and $60 million respectively. An internal audit of the financial records found that these payments were improperly booked into the wrong accounting period, which artificially reduced the company's costs, and boosted earnings in that period making the company look more profitable than it actually was. It is a technique known as earnings management. Because of the probe, Michael Mendes and Steven Neil were removed from their positions as CEO and CFO (Dalai, 2012). The financial records for 2010 and 2011 were found to be unreliable meaning that would have to restate their financial results for both these years. This scandal caused Diamond Foods Inc shares to fall by 40 percent. It seriously damaged the reputation of the company and the trust of their shareholders. It also ruined any chance...
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...CHAPTER 1 INTRODUCTION TO PROFESSIONAL RESEARCH Discussion Questions 1. Research in general involves the investigation and analysis of an issue in question. The researcher usually applies reasonable and reflective thinking to develop an answer to the issue or problem at hand. Research requires a clear definition of the problem, using professional databases to search the authoritative literature, reviewing and evaluating the data collected, drawing conclusions and communicating your results. 2. Accounting, auditing, or tax research involve a systematic and logical investigation of an issue or problem using the accountant’s professional judgment. Furthermore, accountants approach this problem using critical-thinking skills to obtain and document evidence underlying a conclusion relating to an issue or problem currently confronting the accountant or auditor. 3. Accounting, auditing, or tax research are necessary in order to determine the proper recording, classification, and disclosure of economic events; to determine compliance with authoritative pronouncements; or to determine the preferability of alternative accounting procedures. 4. The objective of accounting, auditing, or tax research is a systematic investigation of an issue or problem utilizing the researcher’s professional judgment to arrive at appropriate and timely conclusions regarding the issues at hand. 5. Research plays an important role within an accounting firm or department. It is critical...
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...Consideration of Fraud in a Financial Statement Audit 1719 AU Section 316 Consideration of Fraud in a Financial Statement Audit (Supersedes SAS No. 82.) Source: SAS No. 99; SAS No. 113. Effective for audits of financial statements for periods beginning on or after December 15, 2002, unless otherwise indicated. Introduction and Overview .01 Section 110, Responsibilities and Functions of the Independent Auditor, paragraph .02, states, "The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. [footnote omitted]"1 This section establishes standards and provides guidance to auditors in fulfilling that responsibility, as it relates to fraud, in an audit of financial statements conducted in accordance with generally accepted auditing standards (GAAS).2 .02 The following is an overview of the organization and content of this section: • • • Description and characteristics of fraud. This section describes fraud and its characteristics. (See paragraphs .05 through .12.) The importance of exercising professional skepticism. This section discusses the need for auditors to exercise professional skepticism when considering the possibility that a material misstatement due to fraud could be present. (See paragraph .13.) Discussion among engagement personnel regarding the risks of material misstatement due to fraud. This section requires...
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...AUO1 – Auditing and Information Systems Additional Study Questions Accounting Information Systems Competency 302.1.1: Nature and Purpose The student understands the nature and purpose of information systems. * What is the difference between transaction processing systems, management information systems, and decision support systems? Transaction processing systems - document financial activities Management information systems - used to collect qualitative as well as quantitative information for decision making within organizations Decision support systems - help the developers of an AIS identify what information they need for their planning, decision making, and control functions * How is a flowchart used? A document flowchart traces the physical flow of documents through an organization—that is, the flow of documents from the departments, groups, or individuals who first created them to their final destinations. * How is the accounting information system documented? An accounting information system is a collection of data and processing procedures that creates needed information for its users. An information system's components: Data or information is input, processed, and output as information for planning, decision-making, and control purposes. Nine reasons to document an AIS are (1) to explain how the system works, (2) to train others, (3) to help developers design new systems, (4) to control system development and maintenance costs, (5) to standardize...
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...Ashley Richardson 11/15/2013 Western Governors University AUO1 – Auditing and Information Systems Additional Study Questions/ Study Guide 1. Accounting Information Systems Competency 302.1.1: Nature and Purpose The student understands the nature and purpose of information systems. * What is the difference between transaction processing systems, management information systems, and decision support systems? 2. Transaction processing systems - document financial activities 3. Management information systems - used to collect qualitative as well as quantitative information for decision making within organizations 4. Decision support systems - help the developers of an AIS identify what information they need for their planning, decision making, and control functions * How is a flowchart used? 5. A document flowchart traces the physical flow of documents through an organization—that is, the flow of documents from the departments, groups, or individuals who first created them to their final destinations. * How is the accounting information system documented? 6. An accounting information system is a collection of data and processing procedures that creates needed information for its users. An information system's components: Data or information is input, processed, and output as information for planning, decision-making, and control purposes. 1. Data flow diagrams provide both a physical and a logical view of a system...
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...#A8 (in Appendix A) III. Case Questions – Answer Key 1. Refer to the second general standard of Generally Accepted Auditing Standards (GAAS). What is auditor independence and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact? The second general standard of generally accepted auditing standards (GAAS) is, “In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors.” If the auditor is not independent, the financial statements are considered unaudited for all practical purposes. In case where the SEC has found that a CPA firm was not independent, it has required that the financial statements be re-audited by another firm. A lack of independence can result in disciplinary action by regulators and/or professional organizations and litigation by those who relied on the financial statements (e.g., clients and investors). The profession,...
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...accounting fraud and auditor legal liability c a S eS inc lu de d in t hiS Se ction 4 89 99 4.1 Enron Corporation and Andersen, LLP Analyzing the Fall of Two Giants . . . . . . . . . . . 4.2 Comptronix Corporation 4.3 Cendant Corporation . . . . . . . . . . . . . . . . . . . . . . Identifying Inherent Risk and Control Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . 111 119 127 137 Assessing the Control Environment and Evaluating Risk of Financial Statement Fraud . . . . . . . . . . . . . . . . . . . . . . 4.4 Waste Management, Inc. 4.5 Xerox Corporation 4.6 Phar-Mor, Inc. Manipulating Accounting Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . Evaluating Risk of Financial Statement Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounting Fraud, Litigation, and Auditor Liability instructor resource Manual — do not coPy or redistribute instructor resource Manual — do not coPy or redistribute enron corporation and andersen, llP analyzing the fall of two giants inS tr uc t ional o b je c t ive S [1] c a s e 4.1 Mark S. Beasley · Frank A. Buckless · Steven M. Glover · Douglas F. Prawitt [2] [3] To help students understand what happened at Enron Corporation and how Andersen’s involvement with Enron led to the accounting firm’s downfall. To enhance students’ appreciation of the importance of understanding an audit client’s core business strategies. To develop students’...
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...techniques to meet the ever changing and | | |increasing needs for financial information. Without the necessary information furnished by accounting, many | | |complex social programs and economic development may never have been realized. | | |Information, in any market economy, assists decision-makers in making wise choices regarding the use of limited | | |resources under their control. When decision-makers are able to make well-informed decisions, resources are | | |allocated in a manner that better meets the needs and goals of companies within the given market. | | |The Philippines, being a developing country, would need a great deal of reliable and timely information to compete| | |in the global market and accounting will play an important role in this prevailing competitive global structure of| | |the economy. Companies use accounting information to evaluate the business situations around the world. It is | | |therefore necessary that future accountants, businessmen, entrepreneurs and economists must be trained properly on| | |how to generate and interpret this financial information. | ...
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