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Accountants and Scandals
- By Chris Uba
- Published May 31st, 2011
- Business School
- Unrated
The year 2002 witnessed an unprecedented number of corporate scandals around the world. In the United States (US), Enron, Tyco, Global Crossing, World.com, among others had went into the oblivion. In many ways, these were typical cases of failed corporate governance, accounting abuses, and outright greed. Their demise is associated with the U.S. federal government passing the Sarbanes-Oxley Act in 2002, intending to restore public confidence in corporate governance in the country.
Comparable failures in Australia (HIH, One.Tel) are associated with the eventual passage of the CLERP 9 reforms. Similar corporate failures in other countries stimulated increased regulatory interest (e.g., Parmalat in Italy). In Nigeria, Cadbury Nigeria Plc was lucky to survive a corporate scandal which led to the removal of its chief executive (CEO) and chief financial officer (CFO).In 2009, Intercontinental Bank Plc, Union Bank Plc, Oceanic Bank Plc, FinBank Plc, Bank PHB Plc, Afribank Plc and Spring Bank Plc had their CEOs sacked on account of issues bothering on imprudent management and lack of corporate governance.
Corporate accounting scandals, are business scandals which arise with the revelation of misdeeds by trusted executives of large public corporations .Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the connivance of officials in other corporations or affiliates especially, accounting and auditing firms as exemplified in the Enron case in which Arthur Anderson was indicated.
Studies revealed that all the scandal cases that have occurred around the world involved outright manipulation of accounts by perpetrators to cover up their greed by presenting false impression about their organisations. In all the cases, accountants were known to be deeply involved. In fact, there is hardly any corporate scandal that did not involve accountants. An accountant is a practitioner of accountancy, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources. It is against this back drop that professional accounting bodies must do something to restore their sagging images being tainted by their members.
Enron provides an example. Enron’s nontransparent financial statements did not clearly depict its operations and finances with shareholders and analysts. In addition, its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to portray a favorable depiction of its performance. According to McLean and Elkid in their book The Smartest Guys in the Room, “The Enron scandal grew out of a steady accumulation of habits and values and actions that began years before and finally spiraled out of control.” In an article by James Bodurtha, Jr., he argues that from 1997 until its demise, “the primary motivations for Enron’s accounting and financial transactions seem to have been to keep reported income and reported cash flow up, asset values inflated, and liabilities off the books.
Arthur Andersen LLP, based in Chicago, in US was once one of the “Big Five” accounting firms in the world was involved in the financial scandal that led to the demise of Enron. The energy company was broken up after revelations of Andersen’s performance as an auditor. The Powers Committee (appointed by Enron’s board to look into the firm’s accounting in October 2001) came to the following assessment: “The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron’s financial statements, or its obligation to bring to the attention of Enron’s Board (or the Audit and Compliance Committee) concerns about Enron’s internal contracts over the related-party transactions. It is not only Arthur Andersen, other big accounting firms have also been indicted in scandals. Many accountants have continued to compromise their professional ethics.
An accountant is one of the primary figures in a business that he or she works for, whether it is a multinational corporation or a small family owned business. Requirements to become an accountant vary upon specialisation and nation, but generally include certification through a professional agency and a basic college degree in accounting and finance. It is against this backdrop that professional bodies like the Institute of Chartered accountants of Nigeria (Ican) should know that its measures to check the excesses of its members are not enough. Ican should go back to the drawing board to re-strategize on how to stem the menace.
Comparable failures in Australia (HIH, One.Tel) are associated with the eventual passage of the CLERP 9 reforms. Similar corporate failures in other countries stimulated increased regulatory interest (e.g., Parmalat in Italy). In Nigeria, Cadbury Nigeria Plc was lucky to survive a corporate scandal which led to the removal of its chief executive (CEO) and chief financial officer (CFO).In 2009, Intercontinental Bank Plc, Union Bank Plc, Oceanic Bank Plc, FinBank Plc, Bank PHB Plc, Afribank Plc and Spring Bank Plc had their CEOs sacked on account of issues bothering on imprudent management and lack of corporate governance.
Corporate accounting scandals, are business scandals which arise with the revelation of misdeeds by trusted executives of large public corporations .Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the connivance of officials in other corporations or affiliates especially, accounting and auditing firms as exemplified in the Enron case in which Arthur Anderson was indicated.
Studies revealed that all the scandal cases that have occurred around the world involved outright manipulation of accounts by perpetrators to cover up their greed by presenting false impression about their organisations. In all the cases, accountants were known to be deeply involved. In fact, there is hardly any corporate scandal that did not involve accountants. An accountant is a practitioner of accountancy, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources. It is against this back drop that professional accounting bodies must do something to restore their sagging images being tainted by their members.
Enron provides an example. Enron’s nontransparent financial statements did not clearly depict its operations and finances with shareholders and analysts. In addition, its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to portray a favorable depiction of its performance. According to McLean and Elkid in their book The Smartest Guys in the Room, “The Enron scandal grew out of a steady accumulation of habits and values and actions that began years before and finally spiraled out of control.” In an article by James Bodurtha, Jr., he argues that from 1997 until its demise, “the primary motivations for Enron’s accounting and financial transactions seem to have been to keep reported income and reported cash flow up, asset values inflated, and liabilities off the books.
Arthur Andersen LLP, based in Chicago, in US was once one of the “Big Five” accounting firms in the world was involved in the financial scandal that led to the demise of Enron. The energy company was broken up after revelations of Andersen’s performance as an auditor. The Powers Committee (appointed by Enron’s board to look into the firm’s accounting in October 2001) came to the following assessment: “The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in connection with its audits of Enron’s financial statements, or its obligation to bring to the attention of Enron’s Board (or the Audit and Compliance Committee) concerns about Enron’s internal contracts over the related-party transactions. It is not only Arthur Andersen, other big accounting firms have also been indicted in scandals. Many accountants have continued to compromise their professional ethics.
An accountant is one of the primary figures in a business that he or she works for, whether it is a multinational corporation or a small family owned business. Requirements to become an accountant vary upon specialisation and nation, but generally include certification through a professional agency and a basic college degree in accounting and finance. It is against this backdrop that professional bodies like the Institute of Chartered accountants of Nigeria (Ican) should know that its measures to check the excesses of its members are not enough. Ican should go back to the drawing board to re-strategize on how to stem the menace.
