Corporate Failure and Accounting Malpractices

Accounting
Executive Summary
There are many instances of corporate failure that has shaken the entire world. The main reason
for the downfall has been in the area of accounting practices, audit failure and failure of
corporate governance. In the current report, the major emphasis is provided on the corporate
failure that happened in the past two decades and the same has been discussed considering
various practices. The main reason is attributed to the wrong accounting practice and the same is
studied by giving adequate consideration to the wrong accounting practice. The report initiates
with the introduction followed by the downfall of the corporates.
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Accounting
Introduction 3
Section 1: Failure of corporate governance mechanisms 3
Section 2: Omission of amounts 4
Section 3: Falsification, alteration or manipulation of material 4
Section 4: Fraud prevention 5
Conclusion 6
References 7
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Accounting
Introduction
There are a lot of big enterprises that are found to have indulged in malpractices with respect to
accounting their actual well being in their financial statements. The regular unveiling of mishaps
in accounting practices is garnering a lot of public attention. Malpractices in accounting can even
lead to the collapse of an organization in no time. This states the intensity of the adversities
caused as a result of material misstatements in accounting. The untimely demise of Arthur
Andersen and Enron as a result of unending accounting malpractices shocked the entire
accounting industry. WorldCom that used to be the largest telecommunications organization has
been regarded as one of the biggest bankruptcies (Ghassan , 2014). The intensity of the impact
arising out of untimely disintegration of Enron was so huge that even WorldCom went bankrupt.
The accounting malpractices was however not just a US phenomenon as a lot of organizations
worldwide failed to exist as a result of it such as Parmalat in Italy, HIH in Australia, Equitable
Life Assurance Society in the UK, Royal Ahold in the Netherlands and so on. These suspended
accounting problems paved ways for Enronitis which is a slang term used to denominate the
doubts held in accounting and auditing practices. The confidence of the public was ruined in the
financial system of an organization as more and more revelations came into the picture
(Carnegie,Brendan, & Connel, 2014).
Section 1: Failure of corporate governance mechanisms
The failure of corporate governance systems in identifying the mishaps in accounting practices
and averting the disintegration of eminent organizations has been the most drastic side of the
corporate system. Failure in corporate governance mechanisms suggests that the lawful
guidelines pertaining to the responsibilities of directors and managerial personnel were not
properly established and as a result of which the stakeholders and potential investors were not
provided with the true and fair view of a company’s actual financial well being in the financials
of the same (Babic, 2011). Corporate governance mechanisms must be executed with an
objective to detect the underlying frauds and errors in the financial system of an organization so
as to enhance the fairness of the financials of the same and gain the trust of the existing and
potential investors.
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