Explanation of how corporate crises/failures lead to improved accounting regulations/standards

This article explores the relationship between corporate crises and improved accounting regulations and standards for financial reporting. It discusses how corporate failures provide experience and insights that help shape accounting standards and increase transparency in the business environment.

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Contemporary Accounting Theories
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“Explanation of how corporate crises/failures in every era lead to improved accounting
regulations/standards for financial reporting in the subsequent periods”
In a perfect world scenario, the investors, executives and board members would have
complete trust on the financial statements of the company and they would easily rely on the
intelligence of the statement. In a perfect world, there would be no uncertainty in the business
environment that would lead to business failure. However, all these events can happen in a
perfect world scenario only as in the current environment, the companies face crisis also and the
investors face losses in the business environment. Corporate failure and crisis are a significant
aspect that helps a business in growing as they provide experience to the corporate for future
survival. Corporate failures helps the organizations to look backward at the events that has
happened in past with other organizations and act responsibly for the future prospects of the
company (Eisenberg, 2017). Several accounting ratios in the business environment are made
even after the occurrence of various cases as before that no authoritative body estimated the
failure of the companies in different ways. One can work on the regulations only after the events
have happened in the business environment.
Further, it should also be noted that in every era accounting standards have helped the
business process in effectively working in the right manner so as to achieve success in the
business environment. Accounting standards refers to the common set of principles and
regulations that define the basis of financial accounting policies and practices in the business
environment. These type of standards improve the level of transparency in financial reporting in
all the countries (Agyei-Mensah, 2016). The accounting standards explain that when and how the
economic events should be recognized, displayed and measured in the business environment.
Investors, banks and regulatory agencies rely on the accounting standards so as to make sure that
relevant financial statement of the organization is displayed in the business environment (Morris,
2018).
Corporate crises events every time lead in the improved accounting regulations for
financial reporting because they provide opportunity to analyse various un-captured areas and
make standards in that respect. One such example of corporate crisis of previous decade is Xerox
Company fraud conducted in the year 2000. The auditor of the company KPMG certified the
company in the year 2000, further in the year 2002 the company restated the financial statements

Contemporary Accounting Theories 2
that reflected the reallocation of the sales revenue of more than $ 2 billion. The company
allegedly changed the sales amount and falsely showed it in the financial accounts of the
company. Resulting to which the company was held liable to pay millions of amount as a
penalty. Further, it should be noted that improper accounting standards provided the opportunity
to the company to defraud the investors and play accounting trick to earn profitability in the
business environment. This corporate failure event helped the accounting practitioners and
Securities board to find out the gaps between the accounting regulations and how they can stop
the companies from misleading the investors in the business environment (Hamilton, &
Micklethwait, 2016). The fraudulent scheme of Xerox made the company to close the gaps in the
accounting regulations prescribed in the environment. So, it can be said that in this way
corporate failure analysed the drawbacks in the accounting standards formed for the companies
in the business environment (SEC.Gov, 2018).
Another example can be seen of the company Toshiba that conducted corporate fraud in the year
2015. The company was reported for accounting irregularities as they inflated the profits by $ 1.2
billion from the period of 2008 to third quarter of 2014. The company overstated the pre-tax
profits which can be seen as tampering the financial results of the company. Material
misstatement was made by officials of Toshiba that represented the ineffectiveness of the
auditors Ernst & Young to detect the error. Toshiba clearly stated irregularities in the accounting
statement that affected its position and made the company pay penalties as well. Thus, it should
be noted that even in past decade or the current decade, corporate frauds have been tackled in the
same way and adversely impacted on the financial position of country. Corporate failures
provide experience to the accounting regulations and it helps in effectively making changes to
increase the transparency in the environment. The role of accounting standards is to increase the
level of transparency in the country and make the companies to work effectively without
providing them any chance of error (Collier, 2015).
These crises situations outlines the events that no company had thought of performing, so it
marks as an example for the companies regarding the activities that they should not perform and
what penalties they can face while implementing them (Khondaker, & Bremer, 2018). All these
financial frauds conducted over the years like Enron fraud, Worldcom scandal, Lehman brothers
scandal etc. have guided the accounting standards with the ways to protect the interest of the

Contemporary Accounting Theories 3
innocent people in the community. It also ensures that the companies present in the business
environment are working successfully to generate profits in an ethical way. These frauds prevent
several other frauds from occurring as the accounting regulations either stops the companies or
the defaults are found out by the auditors of the companies. Thus, it can be said that in every era
corporate crisis provides support to the accounting standards for financial reporting in the
environment. These events make strict accounting regulations for the financial reporting in the
business environment (Bryce, Ali, & Mather, 2015). Thus, in the limelight of above mentioned
events, it should be noted that although corporate crisis adversely affect the financial position
company and trust of investors but it also provide experience to the accounting standards that in
what ways they can reduce the level of frauds happening in the future.

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References
Agyei-Mensah, B. K. (2016). Internal control information disclosure and corporate governance:
evidence from an emerging market. Corporate Governance: The international journal of
business in society, 16(1), 79-95.
Bryce, M., Ali, M. J., & Mather, P. R. (2015). Accounting quality in the pre-/post-IFRS adoption
periods and the impact on audit committee effectiveness—Evidence from
Australia. Pacific-Basin Finance Journal, 35, 163-181.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Eisenberg, M. A. (2017). Legal models of management structure in the modern corporation:
Officers, directors, and accountants. In Corporate Governance (pp. 103-167). Gower.
Hamilton, S., & Micklethwait, A. (2016). Greed and corporate failure: The lessons from recent
disasters. Springer.
Khondaker, M. R., & Bremer, M. (2018). The Implications of the Toshiba Accounting Scandal
for Auditors in Japan. Nanzan management review, 33(2), 137-161.
Morris, R. (2018). Early Warning Indicators of Corporate Failure: A critical review of previous
research and further empirical evidence. UK: Routledge.
SEC.Gov., (2018). United States District Court for the Southern District of New York. Retrieved
from < https://www.sec.gov/litigation/complaints/complr17465.htm >