Corporate Governance

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REPORT
RE: RECENT ACCOUNTING AND CORPORATE GOVERNANCE SCANDALS

Contents
INTRODUCTION:3
CORPORATE GOVERNANCE5
CORPORATE GOVERNANCE IN IRELAND5
RESPONSE FROM REGULATORS TO THE MOST RECENT SCANDALS IN BANKING SECTOR7
US CORPORATE GOVERNANCE at a time of Tyco scandal8
RESPONSE FROM THE REGULATORS -SARBANES-OXLEY ACT 20029
AUDIT10
EXTERNAL AUDIT10
INTERNAL AUDIT11
INTRODUCTION TO ANGLO IRISH BANK12
The Scandals12
Loans to Sean Fitzpatrick13
Irish Life and Permanent Depositing Funds14
Corporate Governance Situation of Anglo16
Ernst & Young – External Auditor17
Impact on Shareholders & The Public18
Company Law, Financial Regulator, Accounting Standards IFRS and GAAP19
TYCO INTERNATIONAL20
DETAILS OF TYCO’S SCANDAL21
ACCOUNTING ISSUES IDENTIFIED22
THE CORPORATE GOVERNANCE WEAKNESSES AT TYCO22
PERFORMANCE OF EXTERNAL AUDITORS23
CONCLUSION27
The Main Reasons for The Scandals27
Steps taken afterwards-will they prevent similar events happening in the future?33
END REFLECTION36
Bibliography:37
Appendices:41

INTRODUCTION:
Accounting and corporate governance scandals have been a growing problem in the recent years. Many believe that the blame for those scandals should be borne on two groups of people. Those responsible for managing a company and those whose duty is to provide assurance on the accounts prepared by the directors (auditors), both of whom failed to perform their jobs adequately. Our report aims to seek how true this general opinion is. We shall examine examples of such scandals, explaining the matter of those scandals, similarities/differences between them as well as reasons for and consequences arising from them. So what are the accounting/corporate scandals?

Wikipedia (2010) outlines accounting/corporate scandals as “political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the cooperation of officials in other corporations or affiliates. “ BPP in its ACCA F8 Study text (2012) states the meaning of fraudulent financial reporting, which in fact leads to corporate scandals as activity that “involves intentional misstatements, including omissions of amounts or disclosures in financial statements, to deceive financial statement users. This may include:

* Manipulation, falsification or alteration of accounting records/supporting documents * Misrepresentation (or omission) of events or transactions in the financial statements * Intentional misapplication of accounting principles

Such fraud may be carried out by overriding controls that would otherwise appear to be operating effectively… Management fraud is harder to detect because management is in a position to manipulate accounting records or override control procedures.” Below we take a closer look at high profile examples of corporate scandals that played some role in forming corporate governance landscape. We will analyse the scandals of Tyco (US) and Anglo Irish Bank (IE)- companies from opposite sides of Atlantic, operating in jurisdictions using different models of regulation (principles vs. rules-based). We cannot talk about the corporate scandals without first explaining the concept of corporate governance, as poor corporate governance often gives grounds to those scandals. The first part of our report focuses therefore on illustrating what corporate governance is all about, what system of corporate governance was in each country at the time of the scandals and what changes were introduced as a response to those scandals. The important role of an audit in relation to corporate governance will also be highlighted. Second part of our report will give detailed...
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