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Arthur Andersen, Questionable Accounting Parctices
ARTHUR ANDERSEN: QUESTIONABLE ACCOUNTING PRACTICESAdhyatmika | Amir Hamzah | David | Kynan | Tantia
THE FIRMINSTITUTIONALIZATION OF ETHICS THE SCANDALSTHE FUTURE OF INSTITUTIONALIZATION
• Set standards for the accounting profession• Rock solid character and integrity• Providing both auditing and consultation services to giant corporation• Vast Growth on 1990’s
Culture: More concern of itsown revenue growthValues: Compromising theauditors independence andcreating conflicts of interestLegal Compliance: TheViolation of ethical conduct aspublic accounting firm
The Ethical Practice is Institutionalized into Generally Accepted Public Accounting Standards
Input Oriented Principle:General underlying rules and Constraining principles Output Oriented Principle: Applicable to users: comparabilityApplicable to preparers: consistency and uniformity
No Taste forAccountingQuestionableAccountingPractices
THE PRACTICE THE VIOLATED STANDARDSUnqualified Statement: False Unreliable as the gatekeepersand misleading approvals of financial statementsNeglecting the practice of Ponzi Falsifying the Financial Scheme Disclosures
THE PRACTICE THE VIOLATED STANDARDSUnqualified Statement with Unreliable as the gatekeepers overstated earnings Being paid for falsifying the Independency as external results auditors
THE PRACTICE THE VIOLATED STANDARDS Inflating earnings throughrecording revenue on contingent Unreliable as the gatekeeperssales and accelerating sales from later periodsUnqualified statements despite Independency and ethical the accounting improper ties judgment as external auditors
THE PRACTICE THE VIOLATED STANDARDSFalsifying the revenue decrease to Unreliable as the gatekeepers alleviate the stock price Treat Reserve fund as revenue Falsifying Financial DisclosuresClassifying Operational Cost as long Independency and ethical judgment term investment as external auditors
THE PRACTICE THE VIOLATED STANDARDS Partnership in Question Auditor and analyst independenceWindow-dressing: Unqualified Unreliable as the gatekeepers, statements with inaccurate Falsifying the Financial figures Disclosures Corporate and Criminal FraudDestroying Enron Documents Accountability
The True Picture Enron’s Accounts: The Company announced the restated figures Year Reported Revised True debt True equity Income Income restated by restated by 1997 $105m $77m Up $771m Down $258m 1998 $733m $600m Up $561m Down $391m 1999 $893m $645m Up $685m Down $710m 2000 $979m $880m Up $628m Down $754m Reported and revised income, debt and shareholder equity 1997-2000 following special partnership revelations.
Public company accounting oversight boardAuditor and analyst independence Enhance Financial Disclosures Whistle Blower Protection Corporate and Criminal Fraud Accountability Cost of Compliance
SOX is very costly to be implementedSOX not providing comprehensive protection for excessive risk taking Regulatory loopholes to mislead the report
Ethics set the groundwork for a company toprosper for many years as an honest corporation rather than burn out quickly like a profit driven supernova