Analysis of Accounting Standards: Corporate Scandals and Politics

This report provides an in-depth analysis of accounting standards and their significance in shaping financial statements, examining the roles of various accounting standard boards and regulatory principles. It investigates the causes of corporate scandals across different eras, highlighting the failures of companies like Enron and WorldCom, and how these events led to the enhancement of accounting policies and regulations. The report further explores the impact of political influences on accounting agendas, demonstrating how political interference can create challenges in applying neutral accounting principles. The analysis covers scandals from 1929-1970, 1980-1990 and 2000-2008, underscoring the evolution of accounting practices in response to corporate failures and political pressures, and the role of regulatory bodies like the SEC, COSO and SOX act in these changes. The report concludes by emphasizing the complex interplay of accounting standards, corporate governance, and political interests in maintaining the integrity of financial reporting and the need for continuous improvement in accounting practices.

Running head: ANALYSIS OF ACCOUNTING STANDARDS
Analysis of Accounting Standards
Name of the Student
Name of the University
Author’s note

1ANALYSIS OF ACCOUNTING PRINCIPLES
Executive summary
The objective of the report is to analyse the consequence of accounting values in grounding
of the financial statements of any organisation. The report comprises informations of the
accountability of the several accounting standard board that set the regulatory principle of
accounting. The cause of the upsurge of several accounting scandals in two dissimilar periods
are pronounced in this report. The report additionally contains the consequence of political
impact above the accounting agendas and exposes the confrontational consequence of the
political interfering on enclosing accounting standards.

2ANALYSIS OF ACCOUNTING PRINCIPLES
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Corporate scandals of different decades leads to the enhancement of accounting principles....3
Political impacts in framing accounting standards.....................................................................9
Conclusions..............................................................................................................................12
Reference..................................................................................................................................13

3ANALYSIS OF ACCOUNTING PRINCIPLES
Introduction
The international regulatory boards of accounting principles are creating changes in
the accounting policies subsequently from the preceding few years. In connection to that, it is
claimed that is the variations are conveying any alteration in the current accounting policies
or not. However, it is challenging to evaluate that whether such deviations are active or not in
the preliminary stage but at the same time it can be said that a number of deviations may not
bring any major enhancements in the accounting policies.
The key area of trouble is connected with the doctrines of the fair valuation of
financial statements. Fair value is the value that looked-for, to be acknowledged if any assets
are vended owing to the occurrence of a dealings among two dissimilar parties. This fair
value notion necessitate to be corrected by the international financial institutions. The
political influence on the actions of the several accounting standard boards points to the
development of hindrance in the application of neutral accounting principles.
Discussion
Corporate scandals of different decades leads to the enhancement of accounting
principles
The growing complexity of businesses upraised the want to contact extra severe
guidelines in the accounting policies. In the past two years, a number of business bodies
confronted the hurdles of accounting scandals, that causes to the failure of the companies.
The accounting policies convey limpidity in the preparation of the financial statements that
led to provide transparent and clear view of the financial reports of the organisation. To take
along a customary in the accounting principle the AASB and the IFRS are making rules and
guiding principle to sustenance the economic steadiness and sustainable development.

4ANALYSIS OF ACCOUNTING PRINCIPLES
Consequently the philosophies are accepted internationally as an global standard for policy
creators (Smith 2018).
After the happening of the large corporate scandals like Enron WorldCom Tyco
Parmalat the distinction of financial statements and the actions of auditors and the
accountants were largely questioned, then it is perverted to be the key point in corporate
governance problem for the past few years. The business disasters has exposed the faintness
of the inside and outside controls over the establishments which is apparent by a clear
accounting principles .an operative accounting policy decreases the opportunity of formation
of any accounting deceptions (O'Connell et al 2015).
Regardless of striking numerous accounting principles quite a few business scandals
grown in earlier years which has produced foremost influence above the financial condition
of any nation. Some of the corporate indignities of two dissimilar period are mentioned below
From 1929 corporate disaster up to 1970 crisis
The 1929 disaster upstretched mostly for the capital market scams, for the period of
1929 to 1970 there were no distinct accounting policies for the listed concerns, that allowed
the companies to deploy the accounting statements, and for that causes the financiers in the
share market agonised enormous financial loss (Sunder 2016).
In the beginning, the big corporate disgrace happened in 1932, the Krueger and Toll
Company was the accountable party in that instance. The organisation used their minor
companies to dodge taxes and prolix the dearth of properties given as safekeeping money for
compelling credits from numerous banks. This disgrace enticed the consideration of the US
government and that causes for the framing of the guidelines on the subject of the corporate
edifice securities market , auditing and accounting (Mohammadrezaei Mohd-Saleh &
Banimahd 2015).

5ANALYSIS OF ACCOUNTING PRINCIPLES
Inside one year of the happening of the Krueger and Toll, indignity case the securities
act requires modification and the regulators made it mandatory that the financiers must obtain
the true and clear financial statements and the organisations should have charted a prudent
accounting policy. All the substantial relations should be unveiled in the financial statements
and that no evidences should be hided from the financiers (Laux & Stocken 2018).
To authorise the action the securities exchange commission was formed on condition
that the recommendation and regulations over the contacts in the securities market and
sustaining proper accounting principles for recording all the dealings in the securities market.
From the year 1940, the income tax rules were applied which convey more clearness
among the organisations. The corporate bodies for evading tax adapt biased accounting
principles and in that way try to influence the financial statements. By bringing rules that are
further rigorous in the taxation system, the governing bodies try to convey more clear
accounting system in the organisations (Markham 2015).
Scandals during the period of 1980 and 1990
In these two eras, the company and legal issues mourned enormous variations, which
directed to the levitation of the large indignities in the 2000. This segment is dissimilar as of
the preceding period of financial disaster; this period produces ambiguities in the financial
system that is responsible for the happening of the large disgraces in the subsequent era.
The national commission on fraudulent financial reporting an inventiveness, which is
taken by the American accounting association, considered the parts of delinquent, which
leads to the deceitful financial reporting. Furthermore, they make essential actions to
recognise the key glitches and eliminate these parts to convey more dependability in the
accounting system, which will lessen the incidence of the deceitful actions of the
organisations. In the year 1992 the COSO agenda was announced which lay down the

6ANALYSIS OF ACCOUNTING PRINCIPLES
culpability for inner regulation to the panel of directors and personnel that must assure the
effectiveness in the procedures .accountability on financial reports and compliance to legal
regulation (Hopper Lassou & Soobaroyen 2017) .
The big corporate scandals from 2000 to 2008
In 2000 one more outrage occurred the name of the organisation which is responsible
was WorldCom that distorted due to another financial disgrace. The organisation used to
endure its process for several years liquidating resources into income formed by influence in
accounting of acquirements. The organisation fidgeted from monetary crunch as they
exaggerated the cash flows and capitalise what must be shown as revenue costs. Regardless
of the point that the procedure of deception is much unpretentious than the Enron case but the
volume of fraud in this case is greater than that of the Enron (Sane2018).
The most disgraceful indignity during this era were Enron ,WorldCom , Tyco and
Parmalat . the main large indignity was the Enron case. The diretors of the Enron contrived
their turnover numbers and influenced the cash flows deliberately. These activities of the
establishment was responsible for the failure of the Enron and it was the reason, the
financiers of the company agonised enormous monetary damage. The establishment by
captivating the benefit of several affiliates distort the obligations and attempt to recover the
volume of sales. Enron at that period was acknowledged as the chief company in USA and
rated 7th largest international company(Flower 2015).
Enron was an example of what has been practised by several international companies
all-round the world. The main trouble was its influence to contaminate the financial system.
Its descent unprotected the limitations of the accounting principles that has been mistreated
by the regulatory bodies auditing firms and other investors. It has been intricate case of

7ANALYSIS OF ACCOUNTING PRINCIPLES
company deceit the accounting influence can be completed within the boundaries of the
principles but the deceptions left missing from these rules, and such rules cannot be
prohibited without difficulty. The appearance of the period turned this type of deceit a main
problem for the entrepreneurship system (Christensen Hail & Leuz 2016).
Amid of the diverse methods used to encourage fraud Enron produced a scrappy
process in directive to regulate the personnel by reasoning and to prolix obligations has given
extraordinary compensation for different actions produced a intricate organisation to
generate dealings that applied accounting frauds to cheat the financiers and also impacts the
auditors and the other investors (Hail Tahoun & Wang2018).
The Enron scandal emphasised the point that there are numerous gaps in the
accounting principles and that can be without any difficulty used to influence the financial
statement. The ambiguities in the accounting systems give chances to the big companies to
rogue the financiers and that result in to the downfall of the large international companies in
the entire world (Elkhashen & Ntim 2018).
Tyco has similarly charted the analogous strategy of WorldCom by creating funds in
the accomplishment procedures they overstated income and once that time arisen the
operating cash flow get unrestrained. The organisation approved incorrect accounting policies
to record the acquirement dealings and attempt to overestimate the financial situation. The
accounting principles were used in such method that even the auditors miscarried to perceive
the basis of manipulation of the organisation (Berg & Moré 2016).
Vivendi Ahold and Parmalat cases happening the disgraces in Europe. There existed
possessions of report of misplaced assets non-report of responsibilities and dishonesties. The
organisation use the tainted balance sheet assets and other accounting rules to enlarge the

8ANALYSIS OF ACCOUNTING PRINCIPLES
income. The organisation also chosen auditors like Grant Thornton and Deloitte (Libby
Rennekamp & Seybert 2015).
The main reason of the happening of continuous accounting deceptions is owing to
the inadequacy of the auditors and the deficient of stringent accounting system. The audit
firms does not keep an eye on the events of inspecting the accounting proceedings of the
organisations as approved by the generally accepted accounting principles and that turn out to
be the key cause for the happening of the accounting disgraces. The auditors are liable to
attest that all the financial statements are prepared in as per the accounting principles but in
all the circumstances the auditors ignored the point and provide authorisation to the corporate
bodies (Bhasin 2016).
The accounting sector happening to be very economical, for that purpose, the auditors
are required to take a smaller amount of charges from the customers, and in return, they are
not aiding their responsibilities accurately. The supervisory body perceive this issue and
bring modifications in the remuneration structure of the auditors. Alongside that, the
governing bodies now striking stringent guidelines for the auditors if it is originates that the
auditors have deliberately ignored their responsibilities at the time of undertaking any audit
works (Vladu Amat & Cuzdriorean 2017).
Corporate accounting scandals led to substantial replies that made laws rules and code
of conducts. With the time all these rules turn into acquisitive and the environment become
more complicated. Increased concerns and verdicts simpler guidelines appeared not to avoid
ingenious accounting and misconducts, as an alternative of making the accounting system
more tranquil these regulation make the accounting system more intricate and susceptible
(Johansson 2016).

9ANALYSIS OF ACCOUNTING PRINCIPLES
It will be appreciated to point out that the SOX does not conflicting the deregulation
of the financial market. The SOX was revised in directive to expose more deception cases
and to get more proficiency in the accounting values. Regardless of conveying several
variations in the accounting standards, it turn out to be unbearable for the supervisory body to
keep the accounting system free from political impact and lobbies (Bushman 2016).
Political impacts in framing accounting standards
Political lobbying to impact the accounting standards has been detected in many
nations all over Europe, Australia and USA. The likelihoods of using the political inspiration
differ from nation to nation. USA has elongated convention of fixing criteria for accounting
principles maximum of the accounting principles has been fixed up by the USA goverment
and there the political impact is uppermost. The political parties impacts the accounting
principles as these are connected with the source of income of the government (Awolowo et
al 2018).
Current variations made by the Australian federal government specifies that the
government wishes to take extra control in setting the accounting policies and for that motive
it wishes to restraint the supremacy of the two supervisory bodies in Australia like ICAA and
the ASCPA. the clutches that trusts that they will acquire extra aids owing to this regulation
has braced this verdict and there has been not as much of disagreement in contrast to the
pronouncement as the other clutch senses the anxiety of mislaying their remaining influence
and finish up with even fewer. This process of influence has headed to the raise of dishonesty
and derelictions that in turn outcomes in the accounting disgraces like Dick smith and many
other Australian companies. The more the government participate in outlining the accounting

10ANALYSIS OF ACCOUNTING PRINCIPLES
charter and instructions the more it will turn out to be feeble and the organisations will take
all the benefit of such faintness in the accounting structure.
The Australian government also take active part in preparing the accounting standards
in that country. The code of conduct that are to be charted by several organisations of that
country during the recording of their accounting principles are prepared by the several
governing bodies which are extremely inclined by the political parties in the country.
This interference of the political parties in framing the accounting principles leads to
the occurrence of ambiguities in the accounting system that reflects the presence of
accounting disgraces in the world.
In USA the government establishments take vigorous role in framing rules of the
GAAP for this motive the modification that are set in the guiding principle become
unsuccessful to convey regulation in the accounting procedures. Further, this left many
faintness in the procedure of framing the rules that create additional harsh guidelines so that it
can be possible to stop the happening of the corporate disasters (Böcking Gros & Worret
2015).
Additionally in US the representatives has authorised the accounting boards to spread
and contrivance financial reporting standards in the securities act. The SEC in turn
represented as the rule creation authority to influence the private sector companies for which
the real persistence of enclosing, these guidelines are not satisfied and that consequences in to
the formation of fissures in the values of accounting.
The political parties tortuously effect the various independent bodies which establish
the rules and guidelines of the accounting system and that stops the apprehensive bodies to

11ANALYSIS OF ACCOUNTING PRINCIPLES
convey additional stringent rules for recording the accounting transactions (Evans & Kamla
2018).
The recognised rules for framing the standards are not as much of truthful. The IAS
states that earlier the IAS or IFRS is functional to the European unions it is obligatory to take
the consents of the governments of that nation. Concerning the point that whether the
insinuation of the directions stated by the IFRS or IAS will be favourable for the citizen of
the nation or not and subsequently by fulfilling assured qualitative standards these guidelines
can be functional in these nations. These intricate approaches make interruption in the
solicitation of the directions that are outlined by several accounting institutions and that turn
out to be the cause that the organisations take the benefit of such impacts of the political
parties and accept the method of manipulation.
The European financial reporting committee suggested cluster indicates the private
sector attention, that make it vibrant for the government-influenced bodies to work for
shielding the concern of the large commercial bodies and that points to the slackening in the
accounting principles. The political parties by receiving monetary help from the large private
sectors attempt to stop the accounting institutes to graft spontaneously and confine them to
convey some key variations in the accounting system, which will protect the consideration of
the financiers and other interested party (Agrawal & Cooper 2017).
The accounting regulatory team signifies the associates of several state governments
and maximum of the personnel are political employees from national bureaus, this specified
that the verdicts of the ARC is completely prejudiced by the governmental parties that are
operated by the government and that the guidelines that are prepared by the committee is not
unrestricted of partiality. Maximum of the accounting regulatory bodies in the entire world is

12ANALYSIS OF ACCOUNTING PRINCIPLES
contain of political agents who effect the pronouncements that are given by these supervisory
bodies.
In USA, also the assembly house and the president choose whether to inhibit in the
archetypal setting procedure. The government make pronouncement whether to create the
variations in the accounting standards appropriate for all the businesses or to maintain the
longstanding guidelines and principles. This government interference has abridged the
influence of the regulatory bodies like FASB or SEC for which the supervisory bodies
abortive to bring any stringent rules that will safeguard the consideration of the stakeholders
from the deceitful act of the commercial bodies (Brown et al 2018).
Underneath the US accounting regulatory system it is quantified that regulation can
merely be completed or improved if all the three parties like the FASB SEC and the
government settled at a similar fact and all the parties contemplate that conveying such
guidelines will be operational for the economy of the nation. If in the least of these three
parties does not approve by any of the guidelines then such guidelines cannot be executed.
This evidences that the supervisory bodies like the FASB, the SEC does not need the full
power to take any pronouncement, and the government take vigorous role in enclosing the
accounting recommendations that provides the chance of political lobbing (Burke & Clark
2016).
Conclusions
Based on the discussion, it can be concluded that the accounting doctrines play a
crucial part in the making of the financial statements of any establishment. The accounting
guidelines and procedures convey unambiguousness in recording the financial dealings of the
establishment. If the organisations accept any erroneous approaches, in the accounting,
principles then the completely financial statements will turn out to be fraudulent and the

13ANALYSIS OF ACCOUNTING PRINCIPLES
organisation will be uniquely accountable for that doing. In the initial periods and in the
contemporary days, quite a lot of accounting disgraces happened in the corporate domain that
leads to the complete failure of any organisation. The cases of Enron, Dick smith, Lehman
brothers displays prominence of the accounting ideologies. The following of clear accounting
principles consequences in conveying more impartiality in the exhibition of the financial
statements to the interested party and that support the businesses to endure on longstanding
base in the market.
The consequence of the political parties in enclosing the guiding principle of
accounting standards turn out to be the chief purpose that the corporate bodies get the chance
to influence in the accounting system and produces accounting disgraces that unfavourably
upset the economy. So in order to build a durable accounting policy it is indispensable to
diminish the impact of the political parties in the enclosing of accounting guidelines and to
provide additional authority to the dissimilar independent bodies.

14ANALYSIS OF ACCOUNTING PRINCIPLES
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