Are Published Financial Statements Really Reliable?
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Code : GOV0028B
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Region : USA |
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Introduction: Corporate Accounting scandals were the outcome of wrongful deeds of the executives of publicly held companies. These wrongful acts and misrepresentations involved devious methods of misdirecting funds, overstating revenues, suppressing expenses, overstating values of corporate assets and underreporting liabilities, often with the connivance of top executives and the accountants who were bestowed with the responsibility of expressing an independent opinion on the truth and fairness of the financial statements. The primary purpose of financial audits was to ensure that the reported financial statements fairly represent the organization’s position and performance to its stakeholders. The stakeholders of the company include its shareholders, tax authorities, banks, regulators, suppliers, customers and employees. In the US Securities Exchange Commission relied on the accounting industry for formulation and implementation of Accounting Standards. Consequently any significant changes in accounting standards have tended to precede auditing failures. Accounting scandals like the Enron and WorldCom raised questions about the reliability of published financial statements. |
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In publicly held corporations ‘creative accounting’3 amounted to fraud and investigations were typically launched by government oversight agencies like the SEC in the United States. In 2002 a series of accounting scandals surfaced in the US which involved big accounting firms like Arthur Andersen, KPMG and others. These accounting firms were charged with negligence in the execution of their duties as auditors to identify and prevent the publication of falsified financial reports by their corporate clients, which had the effect of giving a misleading impression of the companies’ financial status...
