Introduction to Business and Finance Essay Example | Topics and Well Written Essays - 3750 words

Introduction to Business and Finance - Essay Example Accounting scandals is becoming a norm with a number of recent accounting scandals that come into sight each year. These accounting scandals has shaken the economy and costed the stakeholders a great deal. In the last couple of years a few most talked about scandals were Enron, WorldCom, Barings, Parmalat and Hollinger, where billions of dollars accounting fraud happened. Not only did the corporations and accounting firms came into question but also the performance of stock exchanges, rating agencies, financial journalists, bankers and lawyers was questioned (Richard Dyson). These scandals have resulted in firms closing, thousands of people being jobless and many losing money in stocks, apart from the stock exchange crash. Public trust in the accounting and reporting procedures has been shattered. People are especially reluctant to invest their money in stocks, which results in stock exchange fall. Corporate Goverance is responsible to manage certain laws in the corporation and if not done effectively can result in loss for the firm. Corporate Governace in the firms is highly blamed when talking about the financial scandals. As cases of scandals, bankruptcy, accounting frauds are unfolding, the concern over the transparency of the financial reports is increasing. "All these companies used financial gimmicks to inflate their cash flow and profits in order to jack up their share prices and thus accumulate wealth. The investors are confronted with large, well-known companies, disappearing almost overnight. In the process not only small investors but supposedly smart, sophisticated investors have been fooled as well" (B. S. Rao). Many CEOs, CFOs and other related officers have been acquitted or are under trial as a result. One example of this is the recent indictment of Jeffrey Skilling, who was given lifetime prison and has to pay $80 million in fines (CNNMoney). Not only this th e stocks of these firms have gone to decline and now no more exists. The outcome of the other scandals is not different as well. The government after all this chaos has been active in taking some steps to stop these practices. In this regard the Securities and Exchange Comission is responsible for ensuring the transparency in the company. Steps are taken to guarantee proper monitoring of management and all the included pesonnel. Accounting Profession Although most of the accounting firms claim that their duty was only to review the finances, but the indictment of Arthur Anderson has led a question to the credibility of these firms. In this regard the the watchdog role of the auditors comes into question. The firms are now accused of overcharging in order to make the report much more attractive in order to gain profits and rise the stock prices. A report says that the "US government loses over $300 billion each year due to organized tax avoidance" prepared by the accountancy firms (Prem Sikka). There were days when the transparency of the markets highly depended on the accounting firms. Today people and investors have grown suspicious towards their perforamance. Here a question of how to regain the lost pride lies ahead of them. Other Factors Apart from blaming the corporations and the accountants for these scandals, certain other factors are to be blamed as well. These ould be the financial jouranalists, the lawyers