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Scandals In Accounting Essay

3949 words - 16 pages

The financial base of any business depends on the strength of their accounting office and financial advisory board. This, over time, has lead to businesses in tough times causing them to take faulty measures and put false information on the accounting documents. This is a major issue causing stockholders to make investments based on inaccurate accounting documents. Fraud occurs when there are misstatements purposely on financial statements. Fraud is wrongful and a deception for personal gain. Recent history proves that major corporations in the accounting world commit fraud in their financial statements. This causes companies to pay millions in damages as well as declare bankruptcy. Companies are not the only ones responsible to ensure that the financial statements are accurate. The responsibility also falls in the hands of the accounting firms that audit the companies. The accounting world did not prepare for the amount of fraud that was occurring in the early 2000s that changed the accounting world forever.
The accounting firms that audit the companies have a responsibility to keep independence and to detect if there are any fraud or misstatements occurring within the accounting departments. Independence means that the auditor must have no direct connection to the company or the company’s main officers. The auditor will not have independence if the auditor owns stock of the company or has a family member, such as their Dad, as the CEO of the company. Most audits of major companies have audit teams. The audit team breaks up the company’s financial statements to document and analyze the data while ensuring that the correct accounting standards are being followed and meet regulation. Tests are run on samples of transaction in various departments. These tests verify that they follow the internal control standards. Once the tests have been run and verified the auditors can make an opinion on the statements and discover if they are accurate in following the General Accepted Accounting Principles, also known as “GAAP.” The General Accepted Accounting Principles are the standards that all companies must have their accounting procedures follow. GAAP is the procedures that are enforced by the Securities and Exchange Committee, also known as the SEC (Mano).
The SEC was formed in 1934 following the Great Depression. One of the main purposes of the SEC is to protect the investors from fraud accounting. The SEC investigates the financial reporting of major companies to ensure that there are no misstatements and that the investors are not being taken advantage of. The second main purpose of the SEC is to ensure that the markets remain fair and orderly. All investors should be given the same opportunity to invest in the company and the SEC helps stop other investors from getting inside information. This helps investors either invest before the stock rises or sell before the stock drops in value and this is an unfair advantage between investors. The SEC...

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