The Continuum from Legitimacy to Fraud - Research Paper Example

The Continuum from Legitimacy to FraudIntroductionThere is the following recipe of a tasty fraudulent dish: let's put some illegitimate actions and fraud on one scale and legitimacy on another one. It is weird, but very often the scale with fraud overweighs the scale with the legitimate contents. The accountants and CEOs of many companies do not mind tasting this delicate dish full of fraudulent accountant transactions…there is a great degree of temptation and it is very difficult to stay aside and not to try this tasty food.

Thus, the main ingredients of this fraudulent meal will be considered in terms of concepts of legitimacy and fraud in earnings. The first and foremost step is to identify the concepts of fraud and legitimacy. To identify both of these two phenomena, it is possible to outline a conceptualization map. A conceptual basis for this research cedes on theoretical developments by Patton (2002), Schram (2006), Trochim & Donnelly (2008), Shank (2006) and others. These researchers have put much effort to identify the way conceptualization and identification of the given concepts occurs.

A concept of "fraud" can be interpreted in the following way: any attempt of deception can be referred to as "fraud" (Shelton, Whittington, and Landsittel, 2001). The ideas about “earnings management” have been often considered from the perspective of the financial gains. Financial management, as a rule, concerns monetary management in a certain company or organization. Hoffman, Kamm, Frederick, and Petry (1996) claim that fraud and earnings management very often go hand in hand. Legitimate and fraud practices are connected on the background of earnings management.

From legitimacy to fraud To make fraudulent transactions even more "spicy", different companies operate much to master their skills in hiding real figures of income. Basically, every company is on the road of a stable development in case financial gains of the company are reaching a stable progress (Keim and Grant, 2003). When there is a will, there is a way - this famous saying can be interpreted in the following way: Enron Company wanted to reach high profits and used different means both legal and illegal to reach their heights.

Firstly, Enron's accountants were intimidated by their CEOs to introduce fraudulent practices in accounting. Probably, the accountants were not much focused on potential consequences of their fraudulent actions. Very often CEOs and stakeholders introduced fraud to create a visible success of the company. In reality, these companies experienced hardships and subjected their performance to the external risks. The Enron Company was not very careful in this case and went bankruptcy. Shelton et al (2001) suggest the following peculiarities of possible fictitious transactions occurrences: all fraudulent transactions mainly concern real activities of the company.

Levitt claimed that the more flexible accountant practices are, the less chances of fraudulent actions in accounting management occur. In accordance with the study by Levitt (1998) the issue of flexibility in accounting is rather ambiguous issue too. From one perspective, flexibility in accounting would bring many benefits, but, on the other hand, this type of practices is a perfect option for information losses, vague data in financial statements and many other negative outcomes. Thus, in a famous case of the Enron Company, the accountants were ready and open for their flexible practices.

Managers of the company managed to tell the accountants into fraudulent actions and the latter made concessions to their managers. The authorities of the company reaped the fruits of these fraudulent actions, but common people and employees of the Company lost their money and even retired employees had no chance to get their pensions. The main rules and regulations in the sphere of accounting should be strictly followed by the accountants (Statement on Auditing Standards, 2010). Thus, it is possible to give a piece of advice to the accountants: more attention, less concessions, more ethics and fewer changes in their professional activities (Trussel& Rose, 2009).

Ethics in accounting is a remedy for preventing fraudulent practices. ConclusionTo reap the fruits of a legitimate earnings management is possible in case of well-balanced relations among CEOs, shareholders, managers, stakeholders and many other parties involved in the financial affairs of the company. Very often it is considered that to hide something is better than to say truth. Fraudulent actions are very quickly set on fire within the company: to introduce fraud or not, CEOs wonder. Probably…it is somehow possible, managers claim.

Fraud is the only one right way to foster the gains of the company and accountants bow…Consequently, fraud is finally ignited. Accountants can save themselves and their companies from fraudulent transactions in financing if they are not making their practices more flexible. ReferencesHoffman, W. Michael, Kamm, Judith Brown, Frederick, Robert E. and Petry, Edward S. eds. (1996). The Ethics of Accounting and Finance: Trust, Responsibility, and Control. Westport, CT: Quorum. Keim, Mary Thomas, and C.

Terry Grant. (2003). To Tell or Not to Tell: An Auditing Case in Ethical Decision Making and Conflict Resolution. Issues in Accounting Education 18,397+.Levitt, A. (1998). The Numbers Game. Patton, M. Q. (2002). Qualitative research & evaluation methods Thousand Oaks, CA: Sage Publications. Schram, T. H. (2006). Conceptualizing and proposing qualitative research. Upper Saddle River, N.J.: Pearson Merrill Prentice Hall. Shank, G. D. (2006). Qualitative research: A personal skills approach Upper Saddle River, NJ: Pearson Merrill Prentice Hall.

Shelton, Sandra Waller, O. Ray Whittington, and David Landsittel (2001). Auditing Firms' Fraud Risk Assessment Practices. Accounting Horizons 15,19.Statement on Auditing Standards Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards. (2010). Journal of Accountancy 209, 70+. Trochim W. M. K., & Donnelly, J. (2008). The research methods knowledge base (3rd ed.). Mason, OH: Cengage. Trussel, J. M., & Rose, L. C. (2009, June).

Fair Value Accounting and the Current Financial Crisis. The CPA Journal, 79, 26+.