Complete the problem statement for your research effort. You should refine and thoroughly discuss the topic problem for your Term Paper and submit t

ACCT601 Week 3 Lessen

FINANCIAL ACCOUNTING AND REPORTING 1

Week 3 Term Paper

DeVry University

Maria E. Paraskevopoulos

ACCT601

Professor: Ruizhen Hardin

Sep. 21, 2019

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FINANCIAL ACCOUNTING AND REPORTING 2

Financial Accounting adds value to companies in many ways. Accountants, CEO’s,

Managers, and other financial representatives are expected to perform an analysis of the

company’s financials and then report on the financial health of the company through Financial

Accounting and Reporting. It is expected that those representatives are competent and have the

appropriate knowledge and expertise to perform the analysis and give sound judgement. The

results of their representations are then formed into what is the 10k and 10q, reporting to

investors and others the financial health of the company. Unfortunately, the 10k and/or 10q may

not be sound and may lack negative information, such as decreased earnings or loses. The

misstatement of a company’s financials “can be classified as either fraudulent financial reporting

or misappropriation of assets, or both” (Mock, 2004). In an effort to reduce the potential of

fraudulent financial accounting and reporting; internal controls, internal and external auditing

and other forms of detection are put in place to produce sound financial reporting.

In the current financial and accounting landscape, accounting scandals are few and far

between and are caught relatively quickly. That wasn’t always the case. Before the Sarbanes-

Oxley Act of 2002, accounting scandals were so common that every day people started to believe

that this happened on a regular basis. In hindsight, it was select individuals within a company

that were deceitful, usually for their own gain so they can get paid their lavish bonuses. But

because of these scandals such as Enron and WorldCom in which auditing firms were part of the

scandal and tried to hide it, the accounting profession took a serious hit in terms of its integrity.

Common, every day people thought it was common practice and because of these scandals,

companies such as WorldCom and Enron are no longer in business and the account firm Arthur

Andersen are also no longer in business. People’s jobs were lost and the people who worked

every day for these companies ended up having to find new work. You see, the extremely large

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FINANCIAL ACCOUNTING AND REPORTING 3

majority of the workers at these companies and the auditors at Arthur Andersen are not to blame

for these scandals but really it was the actions of the few that affected the thousands.

Accounting is recognized to be the language of business. It is how investors, creditors,

and other companies gain a better understanding of the financial health of the company. It helps

investors to make a better decision of whether they want to invest their money into the company

or if they would rather not take that chance with the company based on its financial position,

past, current, and projected. Accounting helps creditors to determine whether they want to give

credit to a company or not based on whether they are projected to have returns and be able to pay

back the loan. It also helps other companies to compare themselves with other companies in

similar industries to see how they are doing in the market. “There are four major business values

contained in the various branches of accounting: planning, communicating, controlling, and

profit determination. Accounting information is helpful in communicating a company's current

status and its future plans to managers: the language of numbers is international and uniform

across all organizations” (What Is the Value of Accounting Functions in an Organization, 2019).

What caused these large accounting scandals and how were some of these companies

able to “hide” the truth from their investors? What was there to gain for performing these acts of

fraud and what were the consequences of the few? Besides the examples of larger companies

such as Enron and WorldCom, what were some of the common instances of fraud that have

happened in the business world? Does this happen globally or does it seem to center around the

United States?

How did Congress put a stop to these scandals and what was put into place to ensure that

companies will follow the rules? What was the Security and Exchange Commission’s

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FINANCIAL ACCOUNTING AND REPORTING 4

involvement before and after the Sarbanes-Oxley Act of 2002 was put into law? Going forward,

has there been any additional laws or acts proposed and accepted? Also, how has the SEC

impacted the accounting profession and what oversight does the SEC currently have?

Successful Financial Accounting and Reporting begins with management. A management

accountant’s role within the company is to ensure that financial information is disclosed timely

and accurately, so that investors, creditors, and others can make sound business decisions. “If

you are working as a Management Accountant, your role is critical to the success of any

organization” (Adding Value as a Management Accountant – Business Partnering, 2019). If

management is able to add value to the organization and perform up to expectations, they will

also have a seat at the table when it comes to making key business decisions within the company.

Sherman and Young did a great job informing their readers that there are two types of

misstatements that can occur in the financial statements, a misstatement or mistake or a

fraudulent act. Like anything, there is a potential for mistakes and errors can occur. This source

talks about how those errors can be either unintentional (mistake) or intentional (fraudulent). I

will use this source when discussing the difference between errors and fraud.

“A company’s financial conditions are of a major concern to investors and creditors. As

capital providers, investors and creditors rely on a company’s financial conditions for both the

safety and profitability of their investments. More specifically, investors and creditors need to

know where their money went and where it is now” (What Is the Importance of a Company's

Financial Statements, 2019). Chron did a good job at explaining the importance of being able to

rely on the financial statements of a company. Operating results, cash flows, and shareholder’s

equity are all key aspects of a company’s financials. Ensuring that these are accurate is critical

when investors, creditors, and other businesses are making key decisions.

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FINANCIAL ACCOUNTING AND REPORTING 5

These questions, and more, give insight into why the accounting scandals have opened up

the door to more SEC oversight as well as laws put into place to ensure that fair business

practices are being issued. No more are the days of old in which executives manipulated the

numbers for their own gain. Now, the executives are accountable for the results and

manipulating the numbers is becoming harder and harder to do. But with the accounting

scandals of the past, there has been some serious “renovations” being performed in the

accounting profession. For example, accounting firms can no longer be the sole owner of

performing the same client’s audit as well as consulting services. This stemmed from Enron in

which the auditing function of Arthur Andersen was afraid to let manager know about what the

consulting side of the business was doing and vice versa. Because of these renovations to the

accounting profession and now with more oversight from the SEC, the landscape of today’s

accounting field is vastly different from 15 years ago.

Misrepresentation of financials can also come in the form of fraud. Accounting fraud and

the implications of committing fraud can be life changing. In some cases, the accountant will

lose their license, no longer be allowed to practice, fined, thrown in jail, and lose their family. In

other cases, the accountant or fraudster could “get lucky” and get a job with the FBI or some

other government agency to help them learn how to detect and prevent the type of fraud they

committed.

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FINANCIAL ACCOUNTING AND REPORTING 6

Bibliography

Adding Value as a Management Accountant – Business Partnering. (n.d.). Retrieved September

8, 2019, from http://linkup.imanet.org/blogs/abraham-kulangara/2014/08/25/adding-value-as-a-

management-accountant-business-partnering?ssopc=1

Mock, J. M. (2004). Classic Case Studies in Accounting Fraud (Rep.). https://etd.ohiolink.edu/!

etd.send_file%3Faccession%3Dmuhonors1111004894%26disposition%3Dinline

What Is the Importance of a Company's Financial Statements? (n.d.). Retrieved September 7,

2019, from http://smallbusiness.chron.com/importance-companys-financial-statements-

21332.html

What Is the Value of Accounting Functions in an Organization? (n.d.). Retrieved September 07,

2019, from https://smallbusiness.chron.com/value-accounting-functions-organization-24616.html

Young, H. D. (2016, June 20). Where Financial Reporting Still Falls Short. Retrieved September

08, 2019, from https://hbr.org/2016/07/where-financial-reporting-still-falls-short

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