Accounting Project: Financial Accounting Scandals and Management

This accounting project delves into the critical topic of accounting scandals, examining their nature, causes, and consequences. The project begins with a concise overview of what constitutes an accounting scandal, emphasizing the manipulation of financial statements and the parties involved, including executives, employees, and the corporation itself. It then explores the relevance of these scandals to the course material, highlighting how they expose the exploitation of accounting standards and principles, the roles of management and financial accountants in fraud prevention, and the importance of governmental regulations and ethical guidelines. The project further analyzes the relationship between accounting scandals, management accounting, ethics, and people within organizations, discussing the responsibilities of management accountants, the impact on ethical practices, and the roles of various stakeholders. The project concludes by summarizing the role of a management accountant which extends beyond the preparation of financial statements, emphasizing their ability to control the practices, make suggestions to change them, and help the entity to correct them. The project also emphasizes the need for transparent information generation for the users of financial statements.

Running head: ACCOUNTING PROJECT
Accounting Project
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction..................................................................................................................................2
Relevant to the course material....................................................................................................2
Relation of accounting scandals to management accounting, ethics and people.........................4
Conclusion...................................................................................................................................5
References....................................................................................................................................7

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Introduction
The topic which has been selected for undertaking the research in the current scenario is
Accounting Scandals. An accounting scandal can be defined as a business misdeed which arises
from the manipulation of financial statements by those charged with the responsibility of
preparing and presenting them. These tend to come to light after the disclosure of misdeeds by
the trusted executives related to the corporations or the governments. Some of the practices
which are common to the accounting scandals include misusing or misdirecting of funds,
overstatement of revenues, understating expenses and wrong valuation of the assets of the
business. While in certain cases it tends to involve the executive level management of a business,
it also involves people like the employees, corporation or the account of the business itself
(Agrawal & Cooper, 2017). The people who are generally misled are the investors or the
employees of the business and these result in huge amount of financial losses for the people
investing in the businesses. Some of the most prominent accounting scandals in the recent times
include the Tesco scandal of 2014, the Toshiba scandal of 2015, the Odebrecht scandal of 2016
and the Malaysian Development Berhad scandal of 2018. Some of the areas in which these
scandals occurred in the recent times include overstated profits, overstated revenues, fraudulent
invoices and bribing of the government officials (Hail, Tahoun & Wang, 2018). These frauds
resulted only in the financial losses but also led to a significant damage in the reputation of the
entities. Some of the outcomes of these scandals include a change in the authority and
regulations by the government and increased scrutiny of the activities and the reporting practices
of businesses.

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Relevant to the course material
The accounting scandals primarily cover issues related to accounting and financial
management. Hence, they are related to the manner in which the accounting standards and
principles can be exploited by the business. They also show the role that both the management
accountant and the financial accountant play in detecting and preventing frauds occurring within
an organisation. The role of the government is something which cannot be understated. Hence, in
case of large scale scandals like the Enron scandal of 2002, it became evident that the lack of
regulations by the government was responsible for the occurrence of fraud (Dibra, 2016). Hence,
it is related to the ethics and principles section of the course. It relates to the necessity of
following appropriate guidelines as suggested by the government in following fair reporting
practices. These aspects of a scandal highlight the role that auditing and its related principles
play in the prevention of a fraud. These scandals continue to play a prominent role in
highlighting the challenges faced by the management accountant in the 21st century. The changes
in governmental regulations require the management accountant to adapt their practices to the
changing business environment. Hence, accounting scandals are an extension of the role that a
management accountant is expected to play in the organisational context. One of the examples of
a change in the accounting regulations was the introduction of the Sarbanes-Oxley Act by the
United States after a number of high profile frauds like Enron, Tyro and WorldCom. This act
advocates that an organisation should have an accurate and fair financial reporting system in its
business. It also suggests that during scandals like these, the strength of the internal control
system implemented by an organisation is known by the relevant people (Jaijairam, 2017). The
stiff penalties imposed by the SEC against the companies not following the relevant guidelines
suggests that there is an increased importance of following ethics within an organisation. The

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importance given to transparency and full disclosure of information is also significantly high
(McCann, Offoha & Bryant, 2015). These studies are directly related to the topic of corporate
governance and the role it plays in preventing corporate frauds in the long run. The concept of
corporate governance and its application in case of real life firms is also better understood with
the analysis of accounting scandals which have occurred in the real business world. Some other
areas in the course which are directly related to this topic include ethics, sustainability and
financial reporting. The role of a management accountant and the various people operating
within an organisation is also directly related to the coursework undertaken by us (Zainuddin &
Sulaiman, 2016). The technical knowledge possessed by the management accountants like the
selection of an accounting policy and its usage in manipulating the financial statements is also
highlighted by an accounting scandal occurring within an organisation. Manipulation of the
financial results highlights the importance of management accounting within an organisation.
The necessity of good behaviour is also highlighted by the same.
Relation of accounting scandals to management accounting, ethics and people
After going through a wide variety of information sources, there are a few opinions
which have been formed by me. One of them is the fact that the management accountant is
responsible for ensuring that a business reports its financial performance in an accurate manner.
However, it usually does not tend to happen in case of an accounting scandal. While corporate
governance measures are in place to ensure that there is transparency in the reporting practices, it
is routinely exploited in case of an accounting scandal. Other issues faced by the entities which
are highlighted by the accounting scandals include the lack of ethical practices as a part of the
policies followed by an organisation. Ethics refer to the most commonly accepted behaviour in
case of an adverse situation. However, accounting scandals tend to impact the validity of the job

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of an accountant (Copeland, 2015). The commercial priorities of an organisation tend to become
more important than the ethical responsibilities of the people involved in it. However, these are
also important in reminding the people about their responsibilities within an organisation. The
management has an opportunity to train the people about the importance of following ethics in
its accounting and reporting practices in the short and long run. These also highlight the lack of
supervision and law making within an organisation. Hence, they make it necessary for the
organisation to review the ethics being followed in it and improving them towards achieving the
goals of the organisation. With regards to the people within an organisation, the accounting
scandals occur due to the roles played by a wide variety of stakeholders. The senior executive
management are usually responsible for ensuring that the entity follows fair reporting practices.
However, this tends to get ignored by the authorities and hence an accounting scandal occurs.
Other regulators like the government and the regulatory authorities also have a role to play in
stopping these scandals. However, the incentives received by the parties involved results in
encouraging dishonest behaviour amongst the people within the organisation. The main method
through which an accounting scandal is usually exposed is due to whistleblowing by one or some
of the people involved in an organisation. Hence, an accounting scandal highlights the role that
each and every employee plays in ensuring the sound financial performance of an organisation
(Gerstein, Hertz & Friedman, 2016). The role of management accounting is important because
they provide the business with required data which is useful in highlighting the potential frauds
and errors which may be occurring in an organisation. While many literature suggest that the
scandals are always a result of a broader strategy by the top level management, it may not always
be the case. The management accounting function of the business has an important role to play

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by leveraging its control over the management and using its reporting and analysis function to
control the frauds occurring in the business.
Conclusion
On the basis of the above discussion, it can be suggested that the role of a management
accountant is not just limited to the preparation of the financial statements of the entity. The
information which is available with them extends beyond what is available to the external parties
of the business. With their knowledge and available information, the management accountants
can help in ascertaining control over the practices followed by the business and make
suggestions to change them. Apart from this, they can also make suggestions about the
fraudulent business practices occurring within an organisation and help the entity to correct it.
They also play an important role in determining the strategies of the organisation and ensure that
the information is generated in a transparent manner to the users of the financial statements.
These steps are essential in helping in conducting the business in a fair and transparent manner
without affecting its reputation adversely in any situation.

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References
Agrawal, A., & Cooper, T. (2017). Corporate governance consequences of accounting scandals:
Evidence from top management, CFO and auditor turnover. Quarterly Journal of
Finance, 7(01), 1650014.
Copeland, M. K. (2015). The importance of ethics and ethical leadership in the accounting
profession. Research on professional responsibility and ethics in accounting, 19(1), 61-
98.
Dibra, R. (2016). Corporate governance failure: The case of Enron and Parmalat. European
Scientific Journal, 12(16).
Gerstein, M., Hertz, S., & Friedman, H. H. (2016). What Kind of Leaders are Needed for
Today’s Accounting Firms?. Journal of Accounting and Finance, 16(5).
Hail, L., Tahoun, A., & Wang, C. (2018). Corporate scandals and regulation. Journal of
Accounting Research, 56(2), 617-671.
Jaijairam, P. (2017). Ethics in Accounting. Journal of finance and accountancy, (172705), 1-13.
McCann, J. T., Offoha, E., & Bryant, R. (2015). Student Perceptions of Accounting and Business
Scandals on the Accounting Profession. British Journal of Economics, Management &
Trade, 326-341.
Zainuddin, Z. N., & Sulaiman, S. (2016). Challenges faced by management accountants in the
21st century. Procedia Economics and Finance, 37, 466-470.