Unraveling the Details of 10 High-Profile Accounting Scandals
written by: ciel s cantoria • edited by: Linda Richter • updated: 12/30/2010 Before digging into the dirty details of each of these major accounting scandals, we’ll take a look at some of the tools that were used to first detect them – including sophisticated accounting systems and advancements in high-tech communication.
Technology Fighting Against White Collar Fraud
Looking back at the 10 major accounting scandals that changed the business world, it was noted that most of their unraveling came about during the turn of the new millennium, which was a time when the American trade and industries were beginning to experience ...view middle of the document...
As a result, multitudes became jobless, and the trend went from bad to worse throughout the decade.
The Accountants’ Connivance in the Celebrated Accounting Frauds
In the midst of all these accounting anomalies, the accountancy profession and the role it plays came into focus. Accountants helped in misleading the public by certifying that the financial reports of fraudulent companies were true and correct .
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Investors placed their faith in the accompanying audit reports, which served as certifications that the reported income and expenses as well as the assets, liabilities, and stockholders’ equity in the publicly traded companies had been verified and assessed. Basically, the certification carried a statement that the results of the business operation (net income) were all accounted for, by using generally accepted accounting standards and procedures, in accordance with the generally accepted accounting principles. As we list the ten major accounting scandals, one glaring factor surfaces --- six out of the ten companies were handled by Arthur Andersen, LLP, which was then considered as one of the top five US accounting firms. As the external auditor of client-companies, the firm’s auditors did not discover the accounting anomalies. In fact, it turned out that the firm was even responsible for the cover-ups as part of its extra-services as consultant. In view of this, and before delving into the scandals themselves, this article will first examine what drove the accounting firm of Arthur Andersen to disregard its ethical and moral responsibilities.
The Underlying Factors That Gave Rise to Andersen Accounting's Connivance
The Profit Conflict between Andersen Consulting and Andersen Accounting Arthur Andersen, the person, had nothing to do with all the accounting anomalies that were attached to his name. He was the Northwestern University professor/accountant who founded Andersen Accounting (AA) firm, but he died in 1947. Years after his death, his accounting firm was reorganized into two divisions: Andersen Accounting and Andersen Consulting. Andersen Accounting was referred to as the main culprit involved in most of the major accounting scandals. The timelines in AA’s history revealed that as early as 1986, it was already suffering from a chain of million dollar lawsuits filed by companies and securities investors for the firm's failure to uncover internal frauds. All these led to the AA firm’s loss of reputation and loss of clients and to settlements that ranged from $30 million to $1.1 billion prior to the 2000 to 2003 accounting scandals. Due to the accounting firm's inability to generate company profit and heavy losses from the lawsuit settlements, the Andersen Consulting firm broke away in year 2000 and became a separate entity that now goes by its new name as Accenture. On the other hand, the Andersen Accounting division was left to face the numerous...