Major decision makers of any company or corporation employ the accountant’s ability to keep accurate day-to-day record keeping by way of double entry bookkeeping. Accountancy is “the occupation of maintaining and auditing records, and preparing financial reports for a business” (www.dictionary.com). According to Wikipedia, “financial accounting is one branch of accounting and historically has involved processes by which financial information about a business is recorded, classified, summarized, interpreted, and communicated” (www.en.wikipedia.org). The Financial Accounting Standards Board (FASB) is the major organization whose primary purpose is to develop Generally Accepted Accounting Principles (GAAP) in the United States. The FASB is a non-governmental body, whose mission is “to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors and users of financial information.” (www.fasb.org). The FASB created qualitative characteristics of accounting information to facilitate interpretation. These include understandability, usefulness, relevance, and reliability. In addition, the five conventions that help in interpretation are comparability and consistency, materiality, conservatism, full disclosure and cost-benefit (Needles, 2005). According to authors Needles, Powers and Crosson, “the users of financial statements depend on the good faith of those who prepare these statements. They go on in saying “the intentional preparation of misleading financial statements is called fraudulent financial reporting. It can result from the distortion of regards (e.g., the manipulation of inventory records), falsified transactions (e.g., fictious sales), or the misapplication of accounting principles (e.g., treating as an asset an item that should be expensed).”
“Civil securities fraud, also known as investment fraud, is a practice where investors are decieved and manipulated, resulting in theft” according to Wikipedia, the free encyclopedia, explaining securities fraud (www.en.wikipedia.org). A suit of securities fraud can result from companies failing to follow disclosure of material facts concerning the securities of a publicly traded company as set forth by the Securities Act of 1933 and Securities Exchange Act of 1934. According to Meiners, Ringleb and Edwards “securities law imposes liability for misstatements or omissions about the financial status of a business that has issued securities. Misleading information that would reasonably affect investment decisions by securities owners includes misinformation about the present financial status or the future prospects of the enterprise that would affect the price of the security.” The specific topic of liability for misstatements is the focus of the paper. In recent years, two high-profile business scandals came to light where billions of hidden expenses on the books, theft of investors and defrauding the federal government with fraudulent tax reports occurred. Specifically, I am referring to Enron and WorldCom. Each company faced collapse and bankruptcy due to the shady accounting practices, deception, and misstatements reported in financial statements provided to the Securities and Exchange Commission. However, another company faced a similar fate as these two companies – this being HealthSouth and its leadership under Richard M. Scrushy. A great deal of articles and case documents are available; however, an over-abundance of information may have resulted at the acquittal of Richard Scrushy of securities fraud. The civil action case Securities and Exchange Commission vs. HealthSouth Corporation and Richard M. Scurshy is one that initially had indicted Scurshy “with 85 counts of fraud, money laundering, conspiracy, and making false statements. He was the first executive to be charged under the July 2003 Sarbanes-Oxley Act which put the responsibility for...
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