Role of Accounting in Organizational Collapses and Recommendations to Avoid Accounting Scandals

This reflection report discusses the role of accounting in organizational collapses and provides recommendations to avoid accounting scandals. It highlights examples of accounting scandals such as the World Com Scandal and the Enron Scandal. The report suggests internal audit activities, whistleblower policy, and effective internal control mechanism as ways to avoid accounting scandals.

Reflection 1
Reflection Report

Reflection 2
Table of Contents
Reflection Report:............................................................................................................................3
Role of Accounting in Organizational Collapses:........................................................................3
Recommendations to Avoid Accounting Scandals:.....................................................................4
References........................................................................................................................................5

Reflection 3
Reflection Report:
Role of Accounting in Organizational Collapses:
I have learned from the past academic and professional experience, that accounting plays vital
role in organization collapses. This is caused due to intentional manipulations and misstatements
by the staff involved in accounting operations organizations. Example of accounting scandals or
accounting fraud includes world com scandal 2002, Enron scandal, the Tyco Scandal etc. In
World Com Scandal, the accounts and finance department of company have deflated the
company assets by $11 billion as in 2002 (AD, 2018). Due to this kind of manipulation the
adverse market outcomes were faced by the company and its investors like 30000 job loss and
the financial loss to investors amounting to $180 billion. The main player in this fraud was the
CEO of company at that company named as Bernie Ebbers.
The scandal of Enron took place in 2001. Under this scandal, the players of this scandal kept the
huge debt off the balance sheet. The main players of this fraud were former CEO Ken Le and
CEO Jeff Skilling. Due to this scandal, the shareholders of company have faced a loss of $74
billion. In addition to this, Arthur Anderson was also found guilty of fudging key business
accounts of Enron (AD, 2018). This fraud or scandal has also caused different results like loss of
retirement accounts to different investors and employees, loss of jobs to different employees etc.
On the basis of analysis of different scandals, I think that accounting has very major role in
different organizational collapses.
From the past experience, I have learned that there are different types of ways, in which
accounting is responsible for the organizational collapses. Example of these ways involves tax
avoidance, personal purchases, falsification of the financial statements, payroll frauds like

Reflection 4
existence of ghost employees, creation of fraudulent financial statements etc (Quillian, 2017).
Occurrence of these accounting scandals damages the brand image and public image of company
in the market. Failure of organization in timely recognition of these scandals may lead to even
organizational collapse in the industry.
Recommendations to Avoid Accounting Scandals:
In my opinions, there should be internal audit activities in the organizations to avoid accounting
scandals. Along with this, the internal audit department of the organization must be independent
from accounting or other departments of organization. There should be power in the hands of
auditors to make inspection of any account and any employee irrespective of his or her position
within the organization. This can help to avoid the accounting scandals within the organization.
Setting-up of whistleblower policy can also help the organization to motivate its employees to
inform the upper management of company regarding any suspicious activities taking place
within the organization (Reed, 2014). For this purpose, an email address should be developed
that is handled by independent authority of the organization that deals for fraud prevention goals
within the organization. Apart from these, the designing and implementation of effective internal
control mechanism can help to avoid occurrence of accounting scandals in organizations.

Reflection 5
References
AD (2018) The 100 Worst Corporate Accounting Scandals of All Time. [Online]. Available at:
http://www.accounting-degree.org/scandals/ (Accessed: 23 May 2018).
Quillian, J.P. (2017) 6 Examples of Accounting Fraud in the United States. [Online]. Available
at: http://oklahomacitylegalgroup.com/6-examples-of-accounting-fraud-in-the-united-states/
(Accessed: 23 May 2018).
Reed, S. (2014) Six Strategies for Fraud Prevention in Your Business. [Online]. Available at:
http://www.cgteam.com/blog/six-strategies-for-fraud-prevention-in-your-business (Accessed: 23
May 2018).