Analyse the Problem of Accounting Fraud in a Listed Company and Evaluate Possible Solutions
Analyse the problem of accounting fraud in a listed company and evaluate possible solutions
In 2001, Enron Corporation went into bankruptcy due to the disclosure of false information in its financial statements. Similarly, when Lehman Brothers collapsed there was no evidence that it had ever publicly disclosed certain detrimental accounting information. Cases of accounting fraud such as these have become increasingly serious. Accounting fraud can result in creditors and stockholders losing confidence in listed companies, which negatively affects the whole worldwide economy. This paper will briefly analyse some of the causes of accounting fraud in listed companies, and then examine and evaluate three possible solutions to address the situation. First, it will argue that the main cause of accounting fraud in listed companies may be the intentional manipulation of financial statements by management to avoid negative disclosures to the public. Then the three possible solutions offered are the improvement of corporate governance structures, the independence of the certified public accountant (CPA), and the strengthening of laws and regulations governing public supervision of accounting information.
It is generally considered that modern accounting systems provide strong protection for the rapid development and success of an enterprise, especially for listed companies. Especially, in the decades after World War 2, accounting discipline and practice ushered in rapid growth in the developed countries over the decades that followed. Multinationals and listed companies have gradually adopted modern accounting systems for financial accounting and transactions. In addition, in order to fit their operating strategies, listed companies can adjust their presentation form as desired, or use selected information to report a better-looking financial statement, on which credit rating agencies mainly depend to derive their credit rating scores. Since investors sometimes rely
In 2001, Enron Corporation went into bankruptcy due to the disclosure of false information in its financial statements. Similarly, when Lehman Brothers collapsed there was no evidence that it had ever publicly disclosed certain detrimental accounting information. Cases of accounting fraud such as these have become increasingly serious. Accounting fraud can result in creditors and stockholders losing confidence in listed companies, which negatively affects the whole worldwide economy. This paper will briefly analyse some of the causes of accounting fraud in listed companies, and then examine and evaluate three possible solutions to address the situation. First, it will argue that the main cause of accounting fraud in listed companies may be the intentional manipulation of financial statements by management to avoid negative disclosures to the public. Then the three possible solutions offered are the improvement of corporate governance structures, the independence of the certified public accountant (CPA), and the strengthening of laws and regulations governing public supervision of accounting information.
It is generally considered that modern accounting systems provide strong protection for the rapid development and success of an enterprise, especially for listed companies. Especially, in the decades after World War 2, accounting discipline and practice ushered in rapid growth in the developed countries over the decades that followed. Multinationals and listed companies have gradually adopted modern accounting systems for financial accounting and transactions. In addition, in order to fit their operating strategies, listed companies can adjust their presentation form as desired, or use selected information to report a better-looking financial statement, on which credit rating agencies mainly depend to derive their credit rating scores. Since investors sometimes rely