Sunday, 20 January 2013

Notable Accounting Scandals And Outcomes

NOTABLE ACCOUNTING SCANDALS


Company Year Audit Firm Country Notes

Lockheed Corporation 1976
United States

Nugan Hand Bank 1980
Australia

ZZZZ Best 1986
United States Ponzi scheme run by Barry Minkow

Barlow Clowes 1988
United Kingdom Gilts management service. £110 million missing

MiniScribe 1989
United States

Polly Peck 1990
United Kingdom

Bank of Credit and Commerce International 1991
United Kingdom

Phar-Mor 1992 Coopers & Lybrand United States mail fraud, wire fraud, bank fraud, and transportation of funds obtained by theft or fraud

Informix Corporation 1996 Ernst & Young United States

Sybase 1997 Ernst & Young United States

Cendant 1998 Ernst & Young United States

Waste Management, Inc. 1999 Arthur Andersen United States Financial mistatements

MicroStrategy 2000 PricewaterhouseCoopers United States Michael Saylor

Unify Corporation 2000 Deloitte & Touche United States

Computer Associates 2000 KPMG United States Sanjay Kumar

Lernout & Hauspie 2000 KPMG Belgium Fictitious transactions in Korea and improper accounting methodologies elsewhere

Xerox 2000 KPMG United States Falsifying financial results

One.Tel 2001 Ernst & Young Australia

Enron 2001 Arthur Andersen United States Jeffrey Skilling, Kenneth Lay, Andrew Fastow

Swissair 2001 McKinsey & Company Switzerland

Adelphia 2002 Deloitte & Touche United States John Rigas

AOL 2002 Ernst & Young United States Inflated sales

Bristol-Myers Squibb 2002 PricewaterhouseCoopers United States Inflated revenues

CMS Energy 2002 Arthur Andersen United States Round trip trades

Duke Energy 2002 Deloitte & Touche United States Round trip trades

Dynegy 2002 Arthur Andersen United States Round trip trades

El Paso Corporation 2002 Deloitte & Touche United States Round trip trades

Freddie Mac 2002 PricewaterhouseCoopers United States Understated earnings

Global Crossing 2002 Arthur Andersen Bermuda Network capacity swaps to inflate revenues

Halliburton 2002 Arthur Andersen United States Improper booking of cost overruns

Homestore.com 2002 PricewaterhouseCoopers United States Improper booking of sales

ImClone Systems 2002 KPMG United States Samuel D. Waksal

Kmart 2002 PricewaterhouseCoopers United States Misleading accounting practices

Merck & Co. 2002 Pricewaterhouse Coopers United States Recorded co-payments that were not collected

Merrill Lynch 2002 Deloitte & Touche United States Conflict of interest

Mirant 2002 KPMG United States Overstated assets and liabilities

Nicor 2002 Arthur Andersen United States Overstated assets, understated liabilities

Peregrine Systems 2002 KPMG United States Overstated sales

Qwest Communications 2002 1999, 2000, 2001 Arthur Andersen 2002 October KPMG United States Inflated revenues

Reliant Energy 2002 Deloitte & Touche United States Round trip trades

Sunbeam 2002 Arthur Andersen United States

Tyco International 2002 PricewaterhouseCoopers Bermuda Improper accounting, Dennis Kozlowski

WorldCom 2002 Arthur Andersen United States Overstated cash flows, Bernard Ebbers

Royal Ahold 2003 Deloitte & Touche United States Inflating promotional allowances

Parmalat 2003 Grant Thornton SpA Italy Falsified accounting documents, Calisto Tanzi

HealthSouth Corporation 2003 Ernst & Young United States Richard M. Scrushy

Nortel 2003 Deloitte & Touche Canada Distributed ill advised corporate bonuses to top 43 managers

Chiquita Brands International 2004 Ernst & Young United States Illegal payments

AIG 2004 PricewaterhouseCoopers United States Accounting of structured financial deals

Bernard L. Madoff Investment Securities LLC 2008 Friehling & Horowitz United States Massive Ponzi scheme.

Anglo Irish Bank 2008 Ernst & Young Ireland Anglo Irish Bank hidden loans controversy

Satyam Computer Services 2009 PricewaterhouseCoopers India Falsified accounts

Lehman Brothers 2010 Ernst & Young United States Failure to disclose Repo 105 transactions to investors

Sino-Forest Corporation 2011 Ernst & Young Canada-China

Olympus Corporation 2011 Ernst & Young Japan tobashi using acquisitions

Autonomy Corporation 2012 Deloitte & Touche United States Subsidiary of HP.

 

NOTABLE OUTCOMES

The Enron scandal turned in the indictment and criminal conviction of one of the Big Five auditor Arthur Andersen on June 15, 2002. Although the conviction was overturned on May 31, 2005 by the Supreme Court of the United States, the firm ceased performing audits and is currently unwinding its business operations. The Enron scandal was defined as being one of the biggest audit failures. The scandal included utilizing loopholes that were found within the GAAP (General Accepted Accounting Principles). For auditing a big sized company such as Enron, the auditors were criticized for having a brief meeting few times a year that covered lots of material. By January 17, 2002 Enron decided to discontinue its business with Arthur Andersen claiming they had failed in accounting advice and related documents. Arthur Andersen was judged guilty of obstruction of justice for getting rid of many emails and documents that were related to auditing Enron. From this incident little less than 100,000 employees lost their jobs. Although later the ruling was overturned by the U.S. Supreme Court, the image of the auditing firm have been damaged beyond repair, and was never able to come back to its full operation capacity.
On July 9, 2002 George W. Bush gave a speech about recent accounting scandals that had 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 what was considered the largest corporate insolvency ever at the time.
These scandals reignited the debate over the relative merits of US GAAP, which takes a "rules-based" approach to accounting, versus International Accounting Standards and UK GAAP, which takes a "principles-based" approach. The Financial Accounting Standards Board announced that it intends to introduce more principles-based standards. More radical means of accounting reform have been proposed, but so far have very little support. The debate itself, however, overlooks the difficulties of classifying any system of knowledge, including accounting, as rules-based or principles-based.This also led to the establishment of Sarbanes-Oxley.
On a lighter note, the 2002 Ig Nobel Prize in Economics went to the CEOs of those companies involved in the corporate accounting scandals of that year for "adapting the mathematical concept of imaginary numbers for use in the business world".
In 2003, Nortel made a big contribution to this list of scandals by incorrectly reporting a one cent per share earnings directly after their massive layoff period. They used this money to pay the top 43 managers of the company. The SEC and the Ontario securities commission eventually settled civil action with Nortel. However, a separate civil action will be taken up against top Nortel executives including former CEO Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly and MaryAnne E. Pahapill and Hamilton. These proceedings have been postponed pending criminal proceedings in Canada, which opened in Toronto on January 12, 2012. Crown lawyers at this fraud trial of three former Nortel Networks executives say the men defrauded the shareholders of Nortel of more than $5 million. According to the prosecutor this was accomplished by engineering a financial loss in 2002, and a profit in 2003 thereby triggering Return to Profit bonuses of $70 million for top executives.
In 2005, after a scandal on insurance and mutual funds the year before, AIG was investigated for accounting fraud. The company already lost over 45 billion US dollars worth of market capitalisation because of the scandal. Investigations also discovered over a billion US dollars worth of errors in accounting transactions. The New York Attorney General's investigation led to a $1.6 billion fine for AIG and criminal charges for some of its executives. CEO Maurice R. "Hank" Greenberg was forced to step down and is still fighting civil charges being pursued by New York state.

 Source: www.wikipedia.org



1 comment:

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