Question

Summarize the events of a recent accounting scandal. Identify how the illegal/unethical act was detected and the punishments that resulted (fines, prison terms, etc.). What could have been done to detect this act earlier. What could have been done to prevent this from happening in the first place.

Answer 1

Sloution:

Following is the list of some the Accounting Scandals happened recently:

• Fannie Mae Accounting Scandal
• Xerox Accounting Scandal
• The Merck Accounting Scandal
• Parmalat Accounting Scandal
• Health South Corporation Scandal
• PC Associates Accounting Scandal
• Enron Accounting Scandal

We will examine Xerox Accounting Scandal:

Xerox Corporation is the world's biggest provider of toner-based scanner machines and related supplies. In April, 2002, the Securities and Exchange Commission (SEC) documented a protest against Xerox for accounting abnormalities somewhere in between of 1997 and 2000. Xerox recorded incomes from copier rents by perceiving a "sale" in the period a rent contract was marked as opposed to perceiving income over the whole length of the agreement or contract.

Preceding 1997, Xerox had perceived income from equipment rentals, or leases, as required by U.S. generally accounting guidelines. The U.S. GAAP precludes organizations from perceiving the returns as the sale of equipment except if income acknowledgment criteria are met, for example, transfer of proprietorship. On the off chance that none of the criteria are met, the sale is viewed as a rent, and just the rental payments owed to the organization in the present time frame can be treated as income in the present period.

The SEC complained that the Xerox has not consented GAAP and deliberately distorted or misrepresentation financials to Wall Street to meet Wall Street's desires from 1997 through 1999. The accounting irregularities expanded financial year 1997 pre-tax income by $405 million, 1998 pre-tax profit by $655 million, and 1999 pre-tax profit by $511 million. Xerox's senior administration knew about the accounting actions that were made to meet revenue and profit objectives.

Xerox's auditors - KPMG agreed to the management's request related to accounting practices so as to keep up association with Xerox and to ensure the audit and non-audit fees to be received somewhere in the range of 1997 and 2000.

In light of the SEC's grumbling, Xerox Corporation consented to take care of a $10 million penalty and to rehash its financial results for the years 1997 through 2000. In June 2003, six Xerox senior officials accused for protections extortion who agreed to pay of $22 million in penalties.

In January, 2003, the SEC filed a grievance against Xerox's auditors, KPMG charging four partners who allowed Xerox distort or misrepresent $3 billion in incomes and $1.4 billion in pre-tax profit. In April 2005 KPMG settled with the SEC by paying a $22.48 million fine.

So as to recognize this accounting inconsistency earlier and to keep this from occurring in any case, Xerox ought to have followed best corporate governance practices and framed autonomous audit committee to support each significant change in accounting practices and its required reporting to administrative power like SEC. In Addition Xerox ought to follow to all GAAP which gives reasonable accounting practices.

What's more In order to protect freedom of auditor, Auditor of partnership must be mandatorily turned in each 3-5 years. In addition Auditor ought to be kept from offering other advisory services along with audit to evade irreconcilable circumstances. Guidelines must impose responsibility on auditors to report every single known misrepresentation and irregularities discovered during the audit in its audit report and to administrative authorities like SEC.