Accounting Essay on Professional Accountancy Scandals
Task: “Professional accountants need to embody high ethical standards so that governments and the public trust them to act in the public interest. The ethical conduct of accountants reflects on the credibility of both the individual and the entire profession.”You are required to write an accounting essay discussing the extent to which you agree or disagree with this statement. In your discussion refer to at least two accounting scandals to illustrate your position.
According to the research on accounting essay, professional accountants are professionals who perform work related to accounts such as accounting, financial statement analysis, tax return, risk analysis, and auditing. Professional Accountants work with private accounting firms or with the accounts department of large companies. People, market and entire economy need a tax system which is highly effective, transparent and it fulfils the requirement of people of 21st century and for this, the accountants need to build the work policies based on strong ethical principles to ensure full confidence between government and public.The G-20 Public Tax Confidence survey by the ACCA, CA, ANZ, and IFAC revealed a high level of trust among people and companies in professional accountability. According to the study of Sapriantoet al., (2021), Professional accountants must maintain the ethical standards and guiding principles of the area or region they practice. ProfessionalAccounts need to follow guidelines and rules related to the tax system and take care on the matter that no kind of errors or fraud cases happen from their side or from the firm (Kizil and Ka?ba??, 2018).The managing guidelines like International Financial Reporting Standards, is a bunch of rules which is created by the International Accounting Standards Board or keep up the Generally Accepted Accounting Principles, a bunch of rules which is utilized when any fiscal summary is finished for a freely exchanging organization.
Professional Accountants are certified professionals who must be ethically and legally responsible to be honest and non-judgemental, and trustworthy to avoid any kind of negligence in their works. Any kind of scandal or fraud case performed by the professional accountants to help any company to indulge in manipulation of accounts in wrong way must face legal punishments. It is thus important to maintain high ethical standards and guidelines so that people develop more trust in professional accountants.
Accounting scandals involve an employee, the accountant, and the corporation itself and this is misleading for the investors and the shareholders. The simple help the professional accountants can provide is that they develop trustworthy and ethical plans and maintain the responsibility with honesty so that the clients can trust the professionals properly(Martincevicet al., 2020).Two of the major scandals are discussed below to discuss the fact that good ethical professional accountants are required for building trust in people's minds and also in the companies.
World.com was one of the biggest companies of the 1990s and was a symbol of aggressive capitalism. In March 2002, World.com admitted that the company will restate its financial accounts for improper bookkeeping of billions of dollars. Internal audit of the company had shown that for the year 2001, the company transferred $ 3.06 billion and for the year 2002, it transferredfurther $797 million without the correct accounting principles (Ganschowet al., 2020). The results of the internal audit in August 2002, had an additional $ 3.3 billion earning which was considered as improper earning. Hence, the total amount of improper income of the company was thus found to be more than $7.7 billion of which over $ 3.3 billion was misinterpreted as operating income and was from the company’s reserve.Following this finding, the corporation reissued the financial reports for 2000 and forgave intangible assets of $ 50.6 billion. The ex-Controller Scott Sullivan and David Myers were arrested and confronted with seven counts of bribery in security and the proceedings of SEC that is the US security and trade Commission. Sullivan is the head of the executive financial officer and David Myers.Finally, in the year 2002, on July 22, the company had to file chapter 11 bankruptcy protection to protect its creditors while the company was restructuring.
In US history, the World.com episode was viewed as the biggest insolvency case having $107 billion in all out resources and $41 billion in obligations. In the year 2003, in May, the organization consented to pay an enormous sum to the US monetary watchdog.(Akmanet al., 2020). MCI, who was formerly in World.com came to an understandingwith the company for its massive accountancy scandal and had to pay $ 500 million to SEC which wasconsidered as the highest amount of fine imposed to any regulator. The settlements were done according to the civil lawsuit but criminal cases related to former employees who were involved are still pending.
The question on “Professional accountants need to embody high ethical standards so that governments and the public trust them to act in public interest” is true as it is clearly seen from the above example. The scandal of the World.com incident proves the fact that it is a necessity to build a high standard and ethical dealing within the organization and also the professional accountants need to maintain ethics while dealing with any organization. According to me, maintaining ethics is a very important aspect when it comes to accounting books. As it is clearly seen from the example of World.com that misinterpretation of the account books has cheated the investors as the investors have to face heavy losses as the value of the company stock has fallen down in 2002 and the company was in the stage of bankruptcy. If the company followed proper accounting ethics, then the investors would not have suffered a loss. The unethical act of the company brought in mistrust among the investors and public. In order to handle such sensitive situations, professional accountants, need to be very precautious, honest, skilled, and ethical (Ahinfulet al., 2017). The accountant must keep in mind that accounting mistakes and unethical work can make a big blunder and the charge will fall on the accountant also. The reason for which ethical standards are to be maintained is that if the professional accountants use the best judgment skills and maintain honesty towards the profession then there is a lesser chance of any scandals (Marantika, et al., 2020). As seen in the above scandal of World.com, the company had to face a huge bankruptcy problem but the accountancy firm also had to face a huge fine which it had to pay to SEC. The scandal was not only a mistake but also a case of negligence and dishonesty. When a client trusts professional accountants, it is the responsibility of the accountant to keep the trust and work accordingly and ethically.
In the year 2002, Xerox Corp reported that it will rehash its incomes by an edge of $ 2 billion for a five-year time frame from 1997 to 2001,which was done due to accounting error. The internal audit revealed that the company Xerox, improperly put revenues that were posted before it was made. The accounting problem was described by the audit team as a timing and allocation issue. An audit revealed that the company booked improperly far more revenue for five years than the estimated appropriate settlement planned by SEC over its accounting procedures (Gottschalk and Benson, 2020). The misposting of revenues made by the company was approximately $6 billion but SEC in April estimated that the overstatement for four years was $3billion.The organization hence delivered exaggeration for a five-year time frame which was more than $ 6.4 billion that reasons that Xerox had not seen the records errors for every one of these years. The charges that were executed on the organization were of adulterating monetary outcomes for a very long time by boosting the pay to $6.4 billion and for this Xerox needed to pay $10 million and rehash its accounts tracing all the way back to 1997.
Xerox's accounting department inflated its financial statements in order to manipulate the revenue information to steal the tax money they have to pay the government. By using a number of methods such as cookie jar accounting, Xerox Corporation violated the sales identification principle (Gottschalk, 2019). The G.A.A.P regulations are in order to ensure correct financial statement planning and allow external stakeholders to achieve a real and just representation of Xerox's results, in particular investors. These financial statements then allow prospective buyers to decide whether to invest in the enterprise. In order to close the difference between financial projections and real achievable performance, Xerox Corporation used a system known as cookie-jar accounting. With this strategy in place over a 4-year cycle, Xerox has been able to harness customers to see if Xerox has exceeded its expectations if it actually loses a lot. As a result, share prices were pushed down, providing inventories of Xerox Corporation and eventually falsifying their valuation (Butala and Khan, 2019). Xerox fabricated the upward push in equity markets and defrauded the clients to think that the financial status of the firm was much better than it was, ultimately charging Xerox with a fine of more than $10 million. In the same timeframe Xerox Mexico, Xerox succeeded in defrauding investors. This meant that executives prevented business policies from fulfilling the requirements and concealed large sums of bad debt.
The problem faced by the Xerox company proved that timing and allocation were the actual issues and there was also an accounting error. According to Jaijairam (2017), Professional Accountants need to take care of the important financial dealings and maintain a proper lookout for the financial results. Correct financial accounting is as essential for the accountant as for the company. The problem created for this reason highlighted up the fact that there is a need for good accounting and ethical guidelines which the accountants should follow. The fact is that if the accountant is carrying out ethical accounting practice and honestly providing good time and work, then there will be no complaints or legal issues coming back to the company or the firm (Ishaque, 2019). In this case, the same thing was faced by the company. The issue was related to time and allocation but it was associated with negligence and dishonest work of the accountant and the firm. So, based on the above facts and the incident of the scandals I agree with the statement, “Professional accountants need to embody high ethical standards so that governments and the public trust them to act in the public interest. The ethical conduct of accountants reflects on the credibility of both the individual and the entire profession”.
I agree with the statement that Professional accountants need to maintain ethics in order to maintain trust among the public and government. As a common public, I feel that ethical conduct standards set by the government for the professional accountants is to follow those standards and does not indulge in any illegal activity like hiding clients’ accounts information or misinterpret accounts information such that the client can steal the tax money that should be paid to the government for the betterment of the infrastructure of the nation. But the above two scandals of World.com and Xerox show that many multinational companies have been involved in stealing tax money and professional accountants have helped them in this kind of activities which is a violation of ethical conduct and breaking the trust of the government and public according to me.
Professional accountancy requires a high standard of ethical work, honesty, and dedication. The examples of scandals of two big companies were done and also critical analysis of the incidents is provided in the write-up to justify the statement. Hence it is an acceptable fact that Professional accountancy requires high standard work for the people to trust in them. The scandals that are being done by various professional accountants of MNC’s have a deep impact on the trust of the public. The public views professional accountants to follow ethical conduct and it creates a lesson among the public also to pay correct taxes to the government and maintain account books such that there is no theft of tax money. But this scandal harms the trust and brings in an attitude among the common public that if the professional accountant can break the ethical standards then common people can also do so and it harms the whole nation as improper tax is being paid to the government which harms the growth of the nation. The above examples of scandals show that how the trust of the investors is being cheated by showing falsified accounts and a false statement showing that the company is going in profit but in actuality, the company is going through loss. This is a kind of cheating that professional accountants should avoid.
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