Accounting scandals

From Freepedia

Accounting scandals, or corporate accounting scandals are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large companies and corporations. Such misdeeds typically involve complex methods for misusing and misdirecting funds, often with the collaboration of officials in other corporations —particularly in accounting companies hired to work on large corporate accounts.

In public companies, this type of "creative accounting" can amount to a legal fraud, and investigations are typically launched by government oversight agencies, such as the Securities and Exchange Commission (SEC) in the United States.

In 2002, a wave of separate but often related accounting scandals became known to the public in the U.S. Several leading accounting companies —Morgan Stanley, Arthur Andersen, Deloitte & Touche, Ernst & Young, KPMG, PricewaterhouseCoopers, and others —have admitted to or have been charged with falsifying their records for the purpose giving a misleading impression of their client companies' status. In several cases, the monetary amounts of the fraud involved are in the billions of dollars USD.

Contents

Scandals

Big Five accounting auditors

(Auditors ie. accounting firms are listed, followed by their related clients.)

  • Arthur Andersen -- CMS, Cornell, Dynegy, Enron, Global Crossing, Halliburton, Martha Stewart Omnimedia, Merck, Peregrine, Qwest, Sunbeam, Waste Management, WorldCom
  • Deloitte & Touche -- Adelphia, AES, Cendant, Duke, El Paso, Merrill Lynch, Reliant, Rite Aid
  • Ernst & Young -- AOL Time Warner, Dollar General, PNC
  • KPMG -- Citigroup, CA, GE, IM Clone, Peregrine, Xerox
  • PricewaterhouseCoopers -- Bristol Myers, HPL, JP Morgan Chase, Kmart, Lucent, MicroStrategy, Network Associates, Phar-Mor, Tyco
  • Coopers & Lybrand LLP -- Network Associates
  • Gutierrez & Co. -- Vivendi
  • Grant Thornton -- Parmalat

Accounting scandals by year first reported

2002

(Client companies are listed, followed by their prominent executives, known to be culpable in committing fraud)

Later scandals

Outcomes

The Enron scandal has so far resulted in the criminal conviction of the Big Five auditor Arthur Andersen, and that firm has had to divest itself of its non-US partners.

There is a general perception that there are other accountancy scandals waiting to be uncovered, which has contributed to the 2002 stock market downturn.

On July 9, 2002 George W. Bush gave a speech about recent accounting scandals that have been uncovered. In spite of its stern tone, the speech did not focus on establishing new policy, but instead focused on actually enforcing current laws, which include holding CEOs and directors personally responsible for accountancy fraud.

In July, 2002, WorldCom filed for bankruptcy protection, in the largest corporate insolvency ever.

These scandals have reignited the debate over the relative merits of US GAAP, with its rules-based approach to accounting, versus International Accounting Standards and UK GAAP, which favour a principles-based approach. The Financial Accounting Standards Board has announced it intends to introduce more principles-based standards. More radical means of accounting reform have been proposed but so far have very little support.

In 2005, after a scandal on insurance and mutual funds the year before, AIG is under investigation for accounting fraud. The company already lost over 45 billion US dollars worth of market capitalisation because of the scandal. This was the fastest decrease since the WorldCom and Enron scandals. Investigations also discovered over a billion US dollars worth of errors in accounting transactions. Future outcome for the company is still pending.

See also

External links

Further reading

  • John R. Emshwiller and Rebecca Smith, 24 Days: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America or Infectious Greed, HarperInformation, 2003, ISBN 0060520736
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