Vakalahi 1

Aunofo Vakalahi
Dr. Pfeiffer
English 1010
31 May, 2016
Accounting fraud and manipulation
Conrad Black a former newspaper publisher and author wrote,There was a colossal
bankruptcy, 50,000 people lost their jobs, tens of billions of dollars were lost and there was a $4
billion accounting fraud. Keep a little perspective, guy's. Greed, desperation,bad judgement,
immorality, pressure and several other factors can possibly play a role in a business's decision to
manipulate financial statements, or in other words, accounting fraud. Accounting statement fraud
can happen through the company's own personal reason as well as the pressure from a corporate
officer or management. Whatever the reason might be, whether it is to save to company which
would then preserve many jobs, would it make it more or less unethical? All companies and
organizations have business ethics that help to guide the practices of the company. Companies
can make anything from little alteration on income statements to even omitting certain
expenses.Though it may differ from company to company, it is still unethical, whether it is a big
or small alteration. When a company commits financial statement Fraud it affects so many
people,Everyone from the employees of the company to the investors. Financial statement fraud
remains too common an occurrence, often damaging people's retirement and educational savings.
Accounting statement fraud is usually perpetrated by upper management. Not only are they
affected, but also the CEOs themselves. All that they thought they were doing for the good of
the company was a waste. The CEOs lose the most in this act. When it comes to the financial
alterations, do not get fraud and error mixed up.Now lets make the distinction between fraud

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and error. The distinction between the two is that fraud is intentionally committed to make some
gain. Error is unintentional usually because of a computer malfunction or a human error.
Companies may face financial predicaments that they do not want their customers or anyone to
know about in fear of loss of company or failure. Businesses can easily alter financial statements
to paint a pretty picture of success. The issue presented is whether a company has an obligation
to their company first or to their customers, partners and employees.This brings up the ethical
issue of whether businesses should admit financial issues or risk jobs and profit losses by hiding
them?Here we are narrowing it down to universal companies. These are companies that are
billion dollar companies. These companies employ many individuals and have many
partnerships. These companies have a lot on their shoulder and many others they are responsible
for. With all that they are responsible for does it make it any less unethical to commit financial
statement fraud to save not only the company but for all those who are employed and also
partnered up with the company?
Who commits the fraud? At the core of all fraud there are decisions made by individuals.
The decision of these certain individuals can change everything. Like many are aware of, not all
fraud is alike. There are different factors and influences. It differs for every company large or
small. What are these reasons you might ask? Well it can range from various of different reasons.
Anything from wanting a bonus to making it look like the company is doing fine when in reality,
or somehow tied to the financial performance of the company. So how do these individuals do it.
Well there are two very common and well known forms of financial statement fraud. The first
one is overstating revenues by recording future expected sales, inflating assets' net worth by
knowingly failing to apply an appropriate depreciation schedule, hiding obligations off of the
company's balance sheet and incorrect disclosure of related party transactions and structured

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finance deals. Another form of financial statement fraud is known as cookie jar accounting, a
practice in which a company would use generous reserves from good years against losses that
might be incurred in bad years. Whether it is one or the other, it is still financial statement fraud
which is one of the most costly frauds.
What is the importance of business ethics? For both large small companies and
international companies. Do they have much influence and importance to the decisions made
throughout the company? Business ethics are very important to all companies. Business ethics is
more than just employee loyalty and morale or the strength of a management team bond. The
reputation of a business from other businesses, investors and the community are important in
determining if it is a worthwhile investment. If a company does not operate ethically, it will be
less likely that investors will invest in your company or do business at all with this company.
Like presented before, fraud is committed by individuals. Business ethics does not only apply to
the company as a whole but also to the employees as individually.When employees complete
work in a way of honesty and integrity, the whole organization benefits. It starts with the
employees to build a great reputation for a company. Management can prevail through ethical
practices and behavior. Leaders within the organization can guide and teach employees through
example by making beneficial decisions for themselves and also for the company or
organization. Business is a very important characteristic of long term success.
There are many corporations and companies that we can use as an example but there is
one in particular that has drawn a lot of attention to. Enron is a universal company that was an
American energy, commodities, and services company based in Houston, Texas.This specific
company is very well known as well as one of the most complex bankruptcy cases in the United
States. Enron was formed in the 1900s and declared bankruptcy on Dec 2, 2001. It was said that

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enron was worth about 70 billion dollars then in October of 2001 Enron came out and admitted
to false income and indicated that the company's worth was a few billion dollars less than the
balance sheet had stated. It was found that Enron used the tactic of hiding liabilities and inflate
its earnings. Enron also had many partnerships that they had used to hide vast amounts of fraud
and hefty losses on its trading businesses. At this point many might be thinking about Enron
itself as a company but who were affected by the Enron scandal. Lets not forget the employees
who have devoted themselves to this company that had just crumbled to the floor. Enron, who
was accountable for employees earnings, had not only lost their salaries but also the retirement
funds of the employees.The decision that Enron had made, to commit accounting fraud cost so
many their jobs, in fact thousands of employees lost their jobs. Thousands of investors also lost
billion of dollars and their shares in the company which then turned into penny stock levels.
enron also had many partnerships with other energy companies, which also suffered from losses
in hundreds of milions of dollars.So many people were affected by the collapse of Enron. Wait,
the employees and investors had no idea their company was doing this. So who did? Who was
accountable for this? Though so many people were affected by Enron's accounting fraud, not all
Enron employees were apart of it. Many had no idea that the company they worked so hard for
was committing fraud, but yet they were affected.
Who were the main players in this crime? The crime that lost so many their jobs as well
as billions of dollars. Like every other company, there is an individual or a group of individuals
appointed to be head of operations. In larger companies there are CEOs, a chief executive officer,
the highest-ranking person in a company or other institution, ultimately responsible for making
managerial decisions. CEOs are responsible for managerial decisions, which means they are in
charge of the money operations, and make all the major decisions for the

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company. Financial statement fraud is almost always committed by owners of the company or
corporate managers. This was the case for the Enron Company. Enron's CEOs were Jeff Skillings
and Ken Lay, the men who were the main players of the Enron scandal. These two men who
made the decision to commit this crime hurt themselves the most. Not only did they lose the
company and their precious salaries of millions of dollars but they also lost their moral character.
Some might question the importance of morals in a career field but what morals convey is a
sense of trust for customers , partnerships, and anyone incorporated within any company.
Without these morals or ethics, how much do you think your customers would trust you with
their business. This company that had such a great name in the world that was known as one of
America's most innovative companies, is now one of the bigggest fraud cases.Now when
Enron is a subject of discussion the most memorable memory is fraud. Their names are now
unfavored not just to the public, but especially to the former employees, investors, partnerships
and customers. They lied and cheated to save the company. A company that employed so many
individuals. In the long run all it really did was tear it down. the accounting fraud affected Jeff
Skillings and Ken Lay directly, but it does not stop there. There are so many people that were
affected indirectly.
Let's say that Enron had never been exposed for fraud. Imagine all those individuals who
were employed at the time were able to keep their job. All of Enron's partnerships were still
connected. Usually when companies commit financial statement fraud is to deceive others into
thinking that the company is financially stable. Well why do you think these companies might do
this? Well if your company was financially struggling, you want to do whatever it might take to
fix it. Well some individuals think that fraud is the answer to this when there is no other
alternatives. They try to deceive and to paint a pretty picture for the public to see. No we all

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know that these financial records are checked and monitored to make sure that the financial
information is correct and that there is not fraudulent activity or anything suspicious happening.
Fraud for the sake of the company? Well there have been numerous cases where companies were
accused of fraud. But what if the company who is committing fraud does not get caught. They
are able to save their company, the jobs of all those employed within the company whom would
have lost their jobs if they were detected, and also able to continue to provide customers with
products or services. What's the harm in that. It saves all these jobs and keeps the customers
happy. What is the harm in it? Well this choice does not only affect those who have some kind of
relationship with the company, it has a much bigger effect . Not only customers and partnerships
but the economy as a whole.
The economy was also affected from the Enron scandal. According to energy experts,
companies and bankers, the collapse of Enron is now forcing widespread costs on the economy.
Enron being a regional natural gas pipeline company as well as transforming into the world's
largest energy trading company and America's seventh-largest corporation ,a company so large
and a major component to the economy that goes bankrupt, caused major cutbacks. How you
might ask? Well without Enron's gas pipeline contributing to all the other gas pipeline companies
supplying us with natural gas, electric power and other energy products puts the demand on the
rest of the energy industries . The energy provides the necessities for our daily lives and are
constantly being bought ,traded and sold throughout the world. Well without Enron, one of the
largest energy trading company, lead to a major weigh on other energy trading companies. In the
Los Angeles times in 2002, is said, More than $12 billion of investment in new power plants
has been postponed in recent weeks as financial markets, unnerved by Enron's sudden descent
into bankruptcy, have effectively raised the cost of capital for energy projects. Plans to develop

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natural gas deposits also are being cut back dramatically. Enron had caused so many setbacks
for the economy, particularly the energy industry. Experts also said that if these cutbacks result in
power shortages and higher costs in future years, the load will fall on the consumers. The Enron
scandal not only affected the company itself and the employees, partners and investors but all of
us. It cause the economy a lot of setback and million and maybe even billions of dollars.
Big or small, I believe that companies and corporations should report any financial
troubles or mistakes. With financial statement fraud there are many risks. Like the risk of being
caught and losing everything. Yes there obviously have been some companies out there in the
world who have committed the crime but have not been revealed. This in any extent does not
make it any more okay than those who have been detected. It all starts with the decision of
specific individuals to commit financial statement fraud, but affects the lives of so many. Yes the
intention of fraud is sometimes to help the company for the sake of so many individuals but is it
ethical? When a company commits accounting fraud, they are digging the company into an even
bigger hole that will cost them even more in the long run rather than fessing up to their mistakes
as soon as they are aware and taking care of it quickly. That way they dont have to suffer as
much as they would if they continued on with the fraud and getting exposed later.Even if a
company was able to get away with it, it would still be hurting the company financially and also
the economy. Within all companies there are employees that would also be affected from the
process. It could cost these employees their job. Lets not forget any partnerships that a company
might have with other companies and corporation or even banks who have helped in some way
by giving the company a loan. All those somehow tied into the company that has committed this
fraud will all be affected, one way or another. They would not only lose money, but also these
partnerships that they have created in the past to become a greater cause. Besides those obvious

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facts, it is also unethical. Ethics are very important for companies and employees to abide by.
Without ethics, this world would be running on chaos and lies. Ethics are moral principles that
govern a person or groups of behaviors. This is how I would approach a situation similar to
something like financial troubles or fraud. Unfortunately this is not how many companies choose
to take Care of their financial difficulties. Instead they try to hide it and turn to what they might
believe is the only option, FRAUD.

Works Cited
Troy, Adkins. "Financial Statement Manipulation An Ever-Present Problem For Investors |
Investopedia." Investopedia. David Siegel, 22 Sept. 2009. Web. 09 Mar. 2016.
This web page identifies the various ways that financial statements can be manipulated. The goal
is to make the financial condition of the company look better than it actually is in order to meet
established expectations. It discusses the two main approaches to financial statement
manipulation: Inflating current period earnings or by deflating current period expenses. This
website is used mainly to educate investors about being smart in which companies they choose to
invest in and to educate them on how financial statements and and are manipulated. This source

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can be a great tool in classes like accounting where it teaches students how to handle financial
documents or just business classes in general to raise awareness for future investors to be smart
and to look for signs of fraud or manipulation. This helped to enhance my research to another
level where I could go more into depth on why this issue is a common problem in corporate
America.

Pinkasovitch, Arthur. "Detecting financial statement fraud." Bio. David Siegel, n.d. Web. 09 Mar.
2016.
This website shows investors how they can identify fraud within companies. They use Enron as a
prime example of a company whose aggressive accounting practices and financial statement
manipulation began to spiral out of control. It tells us what accounting fraud is and the warning
signs that investors should take note of. This sight is used to educate investors on what they need
to look out for when investing and detecting the red flags. This will help them to stay safe against
fraudulent companies. The information shared in this website would be great to teach in the
classrooms that are business related. This could help to inform investors and future investors on
how to keep their money safe. This source really helped me in understanding what these
investors can do to prevent that hazardous outcomes of fraud and how to detect the red flags
before it becomes too late.

N/A "The 10 Worst Accounting Scandals of All Time." Accounting-Degree.org. N.p., n.d. Web.
09 Mar. 2016.
This source lists the 10 worst accounting scandals and goes more into depth on what had
occurred. It talks about the Waste Management scandal in 1998 to the Satyam scandal in 2009.

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They identify what happened, the main player, how they did it, how they were caught, penalties,
and a fun fact,great examples of big companies that have committed fraud and were able to be
caught and stopped. This is great for people to know and understand that it can happen to anyone
and the importance of looking for the signs. This source was able to extend my understanding on
the topic and open my eyes to how big this issue is. Though you cant always see the signs, it can
still be there.

Flanigan, James. "Enron Is Proving Costly to Economy." Los Angeles Times. Los Angeles
Times, 20 Jan. 2002. Web. 09 Mar. 2016.
Flanigan informs us of the imposing widespread costs that the Enron scandal has on the U.S.
economy, specifically on markets for natural gas and for stocks, bonds and currencies. In the
webpage it says, Enron's collapse adds one-half of 1% to the cost of capital for the energy
industry," a calculation that translates to roughly $4 billion a year. This obviously shows the
effect that the enron scandal has on everyone. It also talks about other companies who have lost
millions of dollars because of the partnership with enron. This source would be great to talk
about in business related classrooms to help them see the effect that fraud has on others and the
economy. This source has helped my to broaden my view on the issue and to think about all the
factors that contribute to it.

Horton, Melissa. "Why Are Business Ethics Important? | Investopedia." Investopedia. David
Siegel, 08 Apr. 2015. Web. 09 Mar. 2016.
Horton discusses the importance of business ethics and the impact it has on how well a
business perform in long term. Horton talks about the importance of ethics in leadership and the

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effect it can have on the employees and how it benefits not only themselves but also the
business as a whole. It also talks about the ethical operation of a company and the profitability it
will have in both long and short term. It talks about the reputation of the company and how it
contributes to determining whether a company is worthwhile or not. A Lot of the information in
this source would be great to teach in business classes. Business ethics has such big
component in running a business or working within one. This source has helped me to
understand the importance of business ethics and how a company is viewed.

N.p., n.d. Web.

This source provided me with a great quote regarding the loss of thousands of jobs due to a 4
billion dollar fraud. At the end of the quote it says, Keep a little perspective, guys. this is a
great way to show how fraud can affect so many people. This quote would be great to share in
business classes even within business and companies that will help them keep perspective. I used
this quote to start my paper to catch the reader's attention. It really helped me to take a better
look at how fraud can cause the loss of many jobs.