Instructions:
Paper should be NO LESS than five pages, double spaced, 1” margins. Minimum of five references, APA style
Evaluating Ethical Considerations arising in Financial Accounting
There have been a number of high profile accounting scandals. Enron and Worldcom are well known and have been extensively evaluated by regulatory agencies, the courts and others. You are requested to research and write a paper ( 5 pages, double spaced using 12 point font) evaluating a questionable accounting practice (excluding Enron and Worldcom). You can select from the examples provided in Appendix A or conduct independent research regarding another questionable accounting practice. You should select a matter that interests you. As an example, the PNC matter included in Appendix A involves the company, a third-party provider of financial services to the company and an external auditor providing advice to the third-party provider. The topic should not be fairly recent. Please check with your professor if you are in doubt about the topic.
You cannot submit a paper you used for other ethics assignments in a different course. This is considered to be plagiarism and consequences are very serious.
The paper should summarize the facts giving rise to the questionable accounting practice(s) and include (but is not limited to):
What parties were involved in the questionable practice?
CEO?
CFO?
Internal accounting or tax departments?
Third-party provider of financial products or services?
External Auditor?
Other?
What enabled the accounting scandal?
Corporate culture – (tone at the top)?
External or internal pressure?
Corporate compensation practices and policies?
What controls or processes could have been instituted to deter the questionable accounting practices?
Statement of corporate value (Code of Conduct) and other policies?
Corporate culture that encourages reporting of questionable activities?
External auditor awareness and/or engagement?
Internal audit oversight including independent Audit Accounting Committee oversight?
Other?
What principles as provided by the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice were violated or placed into question?
Competence?
Confidentiality?
Integrity?
Credibility?
What penalties, if any, were imposed? Were they adequate from your perspective?
Loss of position or compensation?
Suspension of license or other privileges?
Civil?
Criminal?
As provided in the Interagency Statement on Sound Practices Concerning Elevated Risk Complex Structured Finance Activities (January 11, 2007), did the questionable accounting practice (such as PNC included in Appendix A) involve a Complex Financial Structured Transaction (“CFST”)? Your evaluation should be principles based, considered in broad terms and not limited to whether a defined “financial institution” was involved. If not, why not? If yes, what principles provided in the Interagency Statement may have deterred the CFST(s)?
Formal, written firm-wide policies and procedures to identify, evaluate, assess and document reputational risk?
Transaction lacked economic substance or business purpose?
Transaction was designed for questionable accounting, regulatory or tax objectives?
Concerns that transaction would be properly reported or disclosed in financial reports?
Circular transfers of risk?
Oral or undocumented agreements?
Economic terms that were inconsistent with market norms including substantially disproportionate compensation?
Sufficient due diligence performed to evaluate the reputational risk?
Were experienced senior experts and senior members of management without a direct financial interest in the outcome involved in the approval process?
Other principles or guidance provided in the Interagency Statement?
Appendix A
(References listed below are representative and not comprehensive –
additional research recommended)
Weatherford (2016)
http://ww2.cfo.com/fraud/2016/09/weatherford-fined-140-accounting-fraud/
https://www.sec.gov/news/pressrelease/2016-194.html
https://www.sec.gov/litigation/admin/2016/33-10221.pdf
http://www.marketwatch.com/story/sec-wont-pursue-clawbacks-in-weatherford-accounting-fraud-case-2016-09-27
Toshiba (2015)
http://blogs.wsj.com/briefly/2015/07/21/5-things-to-know-about-toshibas-accounting-scandal-2/
http://www.investopedia.com/articles/investing/081315/toshibas-accounting-scandal-how-it-happened.asp
https://www.toshiba.co.jp/about/ir/en/news/20151208_2.pdf
http://www.glasslewis.com/toshiba-accounting-scandal http://law.emory.edu/ecgar/_documents/volumes/3/3/essays/engelberg.pdf
PNC (2001) – Example of Complex Financial Structured Transaction
http://www.investmentnews.com/article/20061212/REG/612120716/pnc-exec-sanctioned-in-accounting-scandal
https://www.sec.gov/litigation/admin/33-8112.htm
https://www.sec.gov/litigation/complaints/comp18985.pdf
https://www.sec.gov/news/press/2004-163.htm
https://www.sec.gov/litigation/litreleases/lr18985.htm
https://www.sec.gov/litigation/admin/2007/34-55523.pdf
https://www.sec.gov/litigation/admin/2006/33-8759.pdf
Interagency Statement on Sound Practices Concerning Elevated Risk Complex Structured Finance Activities
https://www.federalreserve.gov/boarddocs/srletters/2007/SR0705a1.pdf

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