Accounting Controversies - Essay Example

Thesis: The Enron controversy resulted to different political and economic changes which affected both government and private agencies. IntroductionEnron has developed into becoming a part of America's top ten companies in the span of nearly two decades. Their sudden rise to power seemed impossible to many industries in the financial world. However, the scam which brought upon Enron success was discovered. Body Deception was the name of the game for Enron. They concealed their controversial and suspicious dealings and transaction with their growing debt so that they appear debt-free and admirable to stockholders and the public. At last, every lie and cover up was made known to many when the company suddenly and unexpectedly filed for Chapter 11 Bankruptcy. That was their last resort. Not even company partnerships and affiliations could save the money and the glory of Enron. When the news of bankruptcy of Enron was revealed, the reasons behind Enron's downfall remained unclear and uncertain. There were mixed reactions among businessmen, politicians, stockholders and others. Most of them were enraged while some felt concerned. There were those who were not surprise that the discrepancies with the financial statements could actually happen. It was as if it was the common habit among those who wish to decrease their debt. Questions such as the reason behind the downfall as well as the possible ways and means for preventing bankruptcy rose among the interested public. What hindered the company or the government from foreseeing the end of Enron Was there money laundering or fraud behind the scandal If there was, has the laws implemented by the government sufficient to verify the financial records of Enron To shed light on the Enron controversy, a whistleblower, Sherron Watkins, decided to confess all the financial secrets of the company. The government took its role by initiating an investigation powered up by some of the congressional committees. Aside from Watkins, other key players admitted their involvement and decided to testify while some still pleads not guilty. The involvement of an accounting firm as reputable as Arthur Andersen with the controversy, heightened the interest of the public as well as legislators, economists and politicians. The firm also experienced a great loss even though the verdict has not yet been announced. Their clients retracted their loyalty and shifted to other competitive firms. Some employees resigned and sought other jobs from other companies. The accounting firm did a great job on the falsification and manipulation of Enron's financial statements that the discrepancies remained unnoticed to the public and to the government. The implications of the scandal in the political arena was expected since it had close ties with the White House due to the fact that the once prestigious company spent millions of dollars to support Bush's presidential campaign last 2002 elections. Aside from that, Enron's chief executive had personal and friendly relationships with Bush. The latter distanced from Kenneth Lay to prevent any public misconceptions. The investigations of the scandal also revealed that the company requested the presence of two US cabinet members preceding their file for bankruptcy. Even the current vice-president Dick Cheney did not escape the political associations between the government and Enron. The vice resident had several meetings with the executives of the company in lieu of their energy administration plans. The economic implications of the Enron case included the accounting industry's review of their financial policies with the fear of having the same fate as Enron. Other companies who also used the same aggressive accounting methods as Enron have been affected. They steered away from the limelight and have seemed to have lay-low for the meantime while the issues are still steaming. Enron was not the only one negatively affected by the scandal for the same fate went to Arthur Andersen. He was found guilty of destruction of financial records which proved that they had dealings and transactions with Enron. The existence of corporate fraud was verified by the emergence of the Enron case. With this, President George W Bush enacted a new law which targets the detection and prevention of company fraud. The US Pension regulations underwent scrutiny when it was found out that the worker of Enron lost a huge amount of money due to their pensions scheme being invested largely in Enron's own stocks. It may take sometime to convict those who will be found guilty and vindicate those who have remained innocent after the trial. Like any other children's story, what did the public learn from the Enron controversy The accounting profession tried to reconsider its structure and policies to be able to take notes of those that need to altered, added or deleted completely. They are struggling to turn the crisis into a learning opportunity. The response of the accounting profession and regulation was the enactment of the Sarbanes-Oxley Act of 2002. it has always been known internationally that the laws of the United States involves strict rules in governance with high dignity of professionalism stipulated. The certified public accountants succumbed to the need for changes in its leaders. Their unity enabled them to for a new organization known as Public Company Accounting Oversight Board. The power of the external auditor was introduced in the realm of internal controls which resulted to private and public companies implementing stringent measures to the veracity and accuracy of their financial records. These regulatory and professional responses to the Enron crisis strengthened the requirements of companies to increase the assurance of their complete adherence to the Sarbanes-Oxley Act. The SOX were promulgated to completely modify corporate governance. The auditors became well-equipped with knowledge and skills to easily and accurately detect fraudulent activities in a company. They will succeed once they are able to achieve cooperation with the firms and companies in terms of the adherence to the new laws and regulations pertaining to accounting guidelines. The employees of the accounting firm as well as the workers from the institutions were also empowered by giving them the opportunity to learn and to ask when they believe that there is a possibility of fraud or falsification. In view of the recent technological advancement the role of the accountant is still indispensable in the industry. Nowadays, a lot of businesses make use of the computerized accounting procedure through Accounting Software wherein you will only need to do the initial step of data input or journal entry up to the preparation of its own books of accounts. The new computerized accounting procedure can also aid in reinforcing technical procedures and enhance student's marketable skills. However, this can provide a limited knowledge because the students are not exposed to the "real-world" of accounting systems. It will still be necessary for the students to gain first hand experience of the conceptual aspects of recording transactions rather than forcing them memorize journal entries and pronouncements In spite of the abovementioned advantages of the computerized accounting procedures, there are also disadvantages in using this system. The decision making and analytical part of the accounting procedures are not performed by the computer itself. This is where the role of an accountant is proven to be significant and essential in relation to the technological development in the business world. Aside from since Accounting processes are available on line, turning to the web to search for solutions, to interconnect and to share techniques has be the trend in accounting as online resources continue to expand. There is also a growing increase on line transactions where internet companies act as agent -facilitator and for dot.com companies who trade advertising spaces on each other's sites. Business executives sometimes with the cooperation of officials in other corporations or affiliates resort to so called "creative accounting" resulting to accounting scandals and commission of fraud. Creative accounting pertains to misdeeds by said trusted executives which involve overstating of revenues which is the most significant account in the financial statements, understating expenses and liabilities, overstating corporate assets. These misdeeds render the financial statements unreliable, inaccurate but suited to the purpose of creating a misleading impression on the business' financial status. Most of these scandals were not immediately noted because of the negligence of public accounting firms in their execution of duty. In these cases, Forensic Accounting is very relevant as it can be applied in preventing, detecting and investigating financial frauds like embezzlement, securities fraud, tax evasion and money laundering schemes A controversial US federal law known as The Sarbanes-Oxley Act of 2002 (Pub. L. No. 107-204, 116 Stat. 745, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOx or Sarbox was passed in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Peregrine Systems and WorldCom (recently MCI and now currently part of Verizon Business). These scandals resulted in a decline of public trust in accounting and reporting practices. Named after sponsors Senator Paul Sarbanes and Representative Michael G. Oxley, the Act was approved by the House by a vote of 423-3 and by the Senate 99-0. Conclusion Fraud detection and deterrence should be a required part of the accounting curriculum. Accounting education needs to teach future CPAs the skills to effectively meet the public's expectations in the area of fraud. This includes a basic knowledge of criminology and the laws related to fraud, the fundamentals of investigations, and the various types of fraud schemes. Although more colleges are offering a fraud-examination course as an elective, basic knowledge of fraud detection and deterrence is essential to success in today's professional environment. Briner, Russell F, "Subtle Issues in Revenue Recognition", CPA Journal, March 2001 "Revenue Recognition in Financial Statements", SEC Accounting Bulletin No. 101, December 3, 1999. Turner, Lynn E, "Audit Effectiveness", SEC Accounting Bulletin No. 101, October 7, 1999. Read More