Linguists and psychologists have developed techniques to identify deceptive language and behavior. Why don’t shareholders use these same techniques to evaluate the truthfulness of management and detect financial manipulation?
FTI: Scaling the Great Wall of Accounting issues in chinese reverse mergersasianextractor
We are very honored to be able to invite the Senior Managing Director of FTI Consulting (FCN US, MV $1.5bn), a billion-dollar NYSE-listed global forensic consulting firm, as a guest speaker in our SMU classes to share his knowledge and wisdom with the students in the Accounting Fraud in Asia course in Week 6, the week of 9th February. Over the years in the Asian capital jungles, the FTI people are amongst the few professionals whom I respect for their on-the-field expertise and thought leadership in the area of fraud and forensic investigation. I am sure that the talk will definitely make an impact for our SMU students who will learn not only invaluable lessons from the speaker’s knowledge and wisdom but also about FTI Consulting as their future career choice.
Mercer Capital's Tennessee Family Law | Q2 2019 | Valuation & Forensic Insigh...Mercer Capital
Mercer Capital is the largest valuation and financial advisory firm in Tennessee with offices in Nashville and Memphis. Complex financial issues are a critical part of many of your client engagements. The focus of this newsletter is to provide useful content about these financial issues from the perspective of financial experts. We seek to help you assist your clients in financial and accounting matters.
FTI: Scaling the Great Wall of Accounting issues in chinese reverse mergersasianextractor
We are very honored to be able to invite the Senior Managing Director of FTI Consulting (FCN US, MV $1.5bn), a billion-dollar NYSE-listed global forensic consulting firm, as a guest speaker in our SMU classes to share his knowledge and wisdom with the students in the Accounting Fraud in Asia course in Week 6, the week of 9th February. Over the years in the Asian capital jungles, the FTI people are amongst the few professionals whom I respect for their on-the-field expertise and thought leadership in the area of fraud and forensic investigation. I am sure that the talk will definitely make an impact for our SMU students who will learn not only invaluable lessons from the speaker’s knowledge and wisdom but also about FTI Consulting as their future career choice.
Mercer Capital's Tennessee Family Law | Q2 2019 | Valuation & Forensic Insigh...Mercer Capital
Mercer Capital is the largest valuation and financial advisory firm in Tennessee with offices in Nashville and Memphis. Complex financial issues are a critical part of many of your client engagements. The focus of this newsletter is to provide useful content about these financial issues from the perspective of financial experts. We seek to help you assist your clients in financial and accounting matters.
Learn what can you do to stay a step ahead of fraudsters without limiting revenue growth. Prevent Financial Fraud in your organization with the help of HLB
This presentation is an overview of Fraud Risk Management in Indian companies and the role of the Board of Directors in the context of the newly enacted Companies Act, 2013.
Tricumen / Capital markets revenues and banks valuations 210714Tricumen Ltd
Capital markets revenues and banks’ valuations
The variance of capital markets earnings is often said to (1) heighten the volatility of the share price and/or (2) depress the market valuation.
For the banks included in this note, we find no evidence that the first assumption holds true …
… but we do identify a strong correlation between the capital markets revenue dynamics and valuations: banks with (relatively) stable revenues are rewarded with higher valuations.
Learn what can you do to stay a step ahead of fraudsters without limiting revenue growth. Prevent Financial Fraud in your organization with the help of HLB HAMT
Financial Manipulation Analysis course to be able to track money laundering activities, the hiding of assets and resources by organized crime, corrupt politicians, narcotics distributors, rackets, gambling, and other forms of large scale financial crimes. I was the only civilian in the classroom with most of the other students coming from federal law enforcement agencies. A lot of state gaming commission students.
Learn what can you do to stay a step ahead of fraudsters without limiting revenue growth. Prevent Financial Fraud in your organization with the help of HLB
This presentation is an overview of Fraud Risk Management in Indian companies and the role of the Board of Directors in the context of the newly enacted Companies Act, 2013.
Tricumen / Capital markets revenues and banks valuations 210714Tricumen Ltd
Capital markets revenues and banks’ valuations
The variance of capital markets earnings is often said to (1) heighten the volatility of the share price and/or (2) depress the market valuation.
For the banks included in this note, we find no evidence that the first assumption holds true …
… but we do identify a strong correlation between the capital markets revenue dynamics and valuations: banks with (relatively) stable revenues are rewarded with higher valuations.
Learn what can you do to stay a step ahead of fraudsters without limiting revenue growth. Prevent Financial Fraud in your organization with the help of HLB HAMT
Financial Manipulation Analysis course to be able to track money laundering activities, the hiding of assets and resources by organized crime, corrupt politicians, narcotics distributors, rackets, gambling, and other forms of large scale financial crimes. I was the only civilian in the classroom with most of the other students coming from federal law enforcement agencies. A lot of state gaming commission students.
Case Study Analysis: Cash Flow Productivity at PepsiCo: Communicating Value t...Akash Patil
PepsiCo: Largest F & B business in US
World’s largest snack company
Second largest soft drink company
Employed over 2,00,000 worldwide
2009 sales: $43.2 Billion
Owns 19 Brands
Competitive edge- Product differentiation & Innovation
Goal- Single largest driver of Cash flow for retailers
Strength- Large, sophisticated and flexible distribution & merchandising system
Distribution logistics, Cross Docking
Direct Store Delivery (DSD)
Financial Ethics
Learning Objectives
After completing this chapter, you should be able to:
• Describe the common dilemmas that accountants and financial officers face.
• Consider how commercial conflicts of interest may arise in preparing accounts and financial reports, and
examine whether such conflicts are best dealt with by the government or the marketplace.
• Understand some of the ways companies cheat on financial reports.
• Assess the advantages and disadvantages of insider dealing.
• Explain the problem of rogue trading.
• Describe the various regulations concerning financial practice.
Associated Press/Peter Morgan
7
fie66722_07_c07_165-186.indd 165 3/2/12 9:43 AM
CHAPTER 7Section 7.1 Introduction
Contents
7.1 Introduction
7.2 The Ethics of Accounting
Impartiality
Berle and Means Versus Henry Manne: Two Views of Corporate Corruption
Cooking the Books
Transfer Pricing and Costing
The Ethics of Deception
U.S. Accounting and Reporting History
7.3 Commercial Conflicts of Interest
The Buyer-Beware Principle
Complex Products
Should Customers Do Their Homework?
7.4 Insider Trading
Insider Trading Defined
Examples of Insider Trading
The Free Market Perspective
An Issue of Fairness
Legal Theory of Misappropriation
7.5 Rogue Trading
Example of Rogue Trading: Nick Leeson
What Can Be Done?
7.6 Conclusion
7.1 Introduction
Recently, a steady stream of major financial scandals have rocked the business world. At one
point, Enron (in the United States) was one of the world’s largest utility companies. Within a year,
a massive accounting fraud was uncovered, leading to its bankruptcy. The U.S. communications
company WorldCom was found to have been covering a $3.8 billion fraud, inflating its asset values
to make it look financially healthier than it really was. More recently, the American businessman
Bernard Madoff defrauded some 4,800 clients—including many charities—of $65 billion.
Accountants are trained professionals who are accredited and licensed to provide professional
services concerning the accounts, audits, and reporting of corporations’ finances. Many are mem-
bers of professional organizations, such as the American Institute of Certified Public Accountants,
that have ethical principles or codes of professional conduct that members pledge to adhere
to. Like medical professionals, they are expected to live up to a professional reputation that has
developed over many decades. But innovation in the business world, as well as globalization, has
166
fie66722_07_c07_165-186.indd 166 3/2/12 9:43 AM
CHAPTER 7Section 7.2 The Ethics of Accounting
put increasing pressures on accountants, auditors, and CEOs that can affect their professional
judgment and lead to accounting fraud. Such fraud is costly—in fact, it is estimated to cost the U.S.
economy over $300 billion annually.
In the wake of notable fraud cases such as the ones mentioned earlier, the financial profes-
sion has been under int ...
Homework guidePlease read the following note on fraud to broaden.docxadampcarr67227
Homework guide
Please read the following note on fraud to broaden your understanding of the topic and to guide your responses. [More guide]
Fraud
Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain (adjectival form fraudulent; to defraud is the verb). As a legal construct, fraud is both a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud and/or recover monetary compensation) and a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities). Defrauding people or organizations of money or valuables is the usual purpose of fraud, but it sometimes instead involves obtaining benefits without actually depriving anyone of money or valuables, such as obtaining a driver’s license by way of false statements made in an application for the same (Nigrini 2011).
Financial Statement Fraud
Financial statement fraud is one of the biggest challenges in the modern business world. This is when corporations engage in certain practices designed to hide or maneuver the accounts of a corporation to help it continue to remain attractive to investors. To counter financial statement frauds, especially in the aftermath of the Enron scandal in 2001-2002, the US Congress introduced the Sarbanes Oxley Act, the compliance with which is mandatory for US corporations. A financial statement fraud may be actionable under both the False Claims Act and the Dodd Frank Act as well. You may have suffered a financial statement fraud or may have original information about a financial statement fraud, which means that you may be able to bring either a financial statement fraud lawsuit or a whistleblower lawsuit depending on the facts peculiar to your case.
The most common occurrence of financial statement fraud is when losses are underplayed or deliberately hidden by corporations. Financial statement fraud comprises deliberate misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors, outright falsification, alteration, or manipulation of material financial records, supporting documents, or business transactions, material intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared, deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report, and disclose economic events and business transactions and also intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting principles and policies and related financial amounts.
There are massive issues that emanate from financial statement fraud. Financial statement fraud undermines the reliability, quality, transparency, and integrity of the financial reporting process and jeopardizes the integrity and objectivity of the auditing profession, especially aud.
F4.1 I think if a senior manager delayed a planned maintenance ju.docxmydrynan
F4.1 I think if a senior manager delayed a planned maintenance just to make profits look better I consider that unethical. I think about this the way the military is, they do maintenance all the time. This is to make sure the equipment continues to work the way it needs to. If it doesn't work then people can get hurt or can delay in business production. I can see how this example is questionable just because it isn't as if they completely cancelled the maintenance but just pushed it. I just don't think it would be worth the risk considering how much can go wrong by doing that. Another questionable situation would be not promoting someone because they didn't have the money when in fact they did but didn't want to fork it over. These situations really depend on the details if they are truly unethical or not. If someone was already doing the additional work the promotion would require then I would consider that unethical.
F4.2 It may have an appearance of being somewhat dishonest, but delaying the expense to a later reporting period to provide a higher EPS for stockholders is likely very common. If the expense is accounted for in the next period (when it is incurred), there is no dishonesty displayed. This reminds me of forward contracts, which are also common and expected.
Many years ago, I worked for a defense contractor (one of several at the time). Highly lucrative Government contracts would be bid on by several companies. I remember that the price of the bid would change several times before the ‘best and final’ submission. Each of the defense contractors knew what the others were bidding. I once questioned how the price could change so drastically, and was informed that all of the companies ‘update’ their financial requirements. In the end, these projects always came in significantly over cost (and the Government paid it anyway). I am a strong supporter of our military and national defense, but I have to wonder how things would have changed if the defense companies were held to their bids.
F4.3 The accounting manager is focused on the collection and presentation of financial data. This information would be presented in the financial reporting documents including Income Statement, Profit/Loss, Balance Sheet, etc. The reports are used to support decisions; the accounting manager may be one of the individuals included in the strategic discussions.
The CFO is responsible for both the accounting and finance functions, and plays a key role in making business decisions. The information contained in the financial reports helps to drive business decisions. Multiple roles should be involved in a successful strategic plan; each member of the team comes to the table with unique experience and knowledge. Further, multiple decision makers provides a system of checks and balances.
F4.4 If a firm’s senior manager is delaying a planned maintenance to make profits look better, then I believe that is very unethical. Although, it is unethical I also bel ...
Audit & Corporate Governance - Professional Scepticism David Kyson
A report on professional scepticism within Audit & Corporate Governance. Focussing on disincentives and ways to promote or develop professional scepticism within the work place.
Assessment of Tone at the TopA C C O U N T I N G & A U D .docxdavezstarr61655
Assessment of Tone at the Top
A C C O U N T I N G & A U D I T I N G
a u d i t i n g
JUNE 2015 / THE CPA JOURNAL50
By Susan S. Lightle, Bud Baker, and Joseph F. Castellano
The Psychology of Control Risk Assessment
Standards require that auditors assess an entity’s internal controls over financial reporting (ICFR), includ-
ing the control environment, which is influenced by the tone set by management and the board regarding
the importance of ICFR and the expected standards of employee conduct. This article argues that auditors
cannot assess the tone at the top by simply checking off a list of control mechanisms; they must understand
what motivates behavior within the organization (what might be called the psychology of control risk assess-
ment). It also illustrates a model to help auditors anticipate when an organization is prone to earnings
manipulation, and suggests how to assess the tone at the top of an organization.
In Brief
JUNE 2015 / THE CPA JOURNAL 51
I
n the late 1960s and early 1970s, the
U.S.-based energy conglomerate ITT
put together a remarkable string of
earnings increases under the leadership
of Harold Geneen: ITT increased its net
earnings each and every quarter, for 58
consecutive quarters, or more than 14 years
of Geneen’s 18-year tenure. Geneen was
lionized for this achievement; he became
the highest paid executive in the United
States, authored best-selling books, and was
memorialized across the country in the
form of new centers, buildings, and foun-
dations (Harvey D. Shapiro, “Management
Was the Message,” New York Times,
March 10, 1985, http://www.nytimes.
com/1985/03/10/books/management-was-
the-message.html). Only in retrospect, after
Geneen’s departure and the subsequent dis-
mantling of most of ITT, did it become
clear that those 58 straight quarters of
growth were not what they seemed to be.
The Price of Success
Earnings management—a benign
euphemism for financial manipulation—
is not a wholly irrational activity, albeit
an unethical one. In addition to the praise
heaped upon high flyers like ITT under
Geneen, researchers have demonstrated that
companies reporting 20 consecutive quar-
ters of earnings increases enjoy greater
profitability, higher stock valuations, and
higher price-earnings ratios than counter-
parts with similar underlying financial
strength (James N. Myers, Linda A. Myers,
Douglas J. Skinner, “Earnings Momentum
and Earnings Management,” August 2006,
http://ssrn.com/abstract=741244 or
http://dx.doi.org/10.2139/ssrn.741244).
But Myers, et al., also showed that this
“success” comes with a price: All those
previously positive measures decline
markedly when the unbroken sequence of
quarterly successes finally ends; the longer
the quarterly streak of good news runs, the
deeper the firm’s plunge when the time
of reckoning arrives. Efforts to manipu-
late earnings are practiced by widely dis-
parate companies and CEOs, whether lit-
tle known or famous; publicly regarded
as miscreants or su.
Assessment of Tone at the TopA C C O U N T I N G & A U D .docxfredharris32
Assessment of Tone at the Top
A C C O U N T I N G & A U D I T I N G
a u d i t i n g
JUNE 2015 / THE CPA JOURNAL50
By Susan S. Lightle, Bud Baker, and Joseph F. Castellano
The Psychology of Control Risk Assessment
Standards require that auditors assess an entity’s internal controls over financial reporting (ICFR), includ-
ing the control environment, which is influenced by the tone set by management and the board regarding
the importance of ICFR and the expected standards of employee conduct. This article argues that auditors
cannot assess the tone at the top by simply checking off a list of control mechanisms; they must understand
what motivates behavior within the organization (what might be called the psychology of control risk assess-
ment). It also illustrates a model to help auditors anticipate when an organization is prone to earnings
manipulation, and suggests how to assess the tone at the top of an organization.
In Brief
JUNE 2015 / THE CPA JOURNAL 51
I
n the late 1960s and early 1970s, the
U.S.-based energy conglomerate ITT
put together a remarkable string of
earnings increases under the leadership
of Harold Geneen: ITT increased its net
earnings each and every quarter, for 58
consecutive quarters, or more than 14 years
of Geneen’s 18-year tenure. Geneen was
lionized for this achievement; he became
the highest paid executive in the United
States, authored best-selling books, and was
memorialized across the country in the
form of new centers, buildings, and foun-
dations (Harvey D. Shapiro, “Management
Was the Message,” New York Times,
March 10, 1985, http://www.nytimes.
com/1985/03/10/books/management-was-
the-message.html). Only in retrospect, after
Geneen’s departure and the subsequent dis-
mantling of most of ITT, did it become
clear that those 58 straight quarters of
growth were not what they seemed to be.
The Price of Success
Earnings management—a benign
euphemism for financial manipulation—
is not a wholly irrational activity, albeit
an unethical one. In addition to the praise
heaped upon high flyers like ITT under
Geneen, researchers have demonstrated that
companies reporting 20 consecutive quar-
ters of earnings increases enjoy greater
profitability, higher stock valuations, and
higher price-earnings ratios than counter-
parts with similar underlying financial
strength (James N. Myers, Linda A. Myers,
Douglas J. Skinner, “Earnings Momentum
and Earnings Management,” August 2006,
http://ssrn.com/abstract=741244 or
http://dx.doi.org/10.2139/ssrn.741244).
But Myers, et al., also showed that this
“success” comes with a price: All those
previously positive measures decline
markedly when the unbroken sequence of
quarterly successes finally ends; the longer
the quarterly streak of good news runs, the
deeper the firm’s plunge when the time
of reckoning arrives. Efforts to manipu-
late earnings are practiced by widely dis-
parate companies and CEOs, whether lit-
tle known or famous; publicly regarded
as miscreants or su ...
HomeworkPlease read the following note on fraud to broaden your .docxadampcarr67227
Homework
Please read the following note on fraud to broaden your understanding of the topic and to guide your responses. [More guide]
Fraud
Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain (adjectival form fraudulent; to defraud is the verb). As a legal construct, fraud is both a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud and/or recover monetary compensation) and a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities). Defrauding people or organizations of money or valuables is the usual purpose of fraud, but it sometimes instead involves obtaining benefits without actually depriving anyone of money or valuables, such as obtaining a driver’s license by way of false statements made in an application for the same (Nigrini 2011).
Financial Statement Fraud
Financial statement fraud is one of the biggest challenges in the modern business world. This is when corporations engage in certain practices designed to hide or maneuver the accounts of a corporation to help it continue to remain attractive to investors. To counter financial statement frauds, especially in the aftermath of the Enron scandal in 2001-2002, the US Congress introduced the Sarbanes Oxley Act, the compliance with which is mandatory for US corporations. A financial statement fraud may be actionable under both the False Claims Act and the Dodd Frank Act as well. You may have suffered a financial statement fraud or may have original information about a financial statement fraud, which means that you may be able to bring either a financial statement fraud lawsuit or a whistleblower lawsuit depending on the facts peculiar to your case.
The most common occurrence of financial statement fraud is when losses are underplayed or deliberately hidden by corporations. Financial statement fraud comprises deliberate misstatements or omissions of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors, outright falsification, alteration, or manipulation of material financial records, supporting documents, or business transactions, material intentional omissions or misrepresentations of events, transactions, accounts, or other significant information from which financial statements are prepared, deliberate misapplication of accounting principles, policies, and procedures used to measure, recognize, report, and disclose economic events and business transactions and also intentional omissions of disclosures or presentation of inadequate disclosures regarding accounting principles and policies and related financial amounts.
There are massive issues that emanate from financial statement fraud. Financial statement fraud undermines the reliability, quality, transparency, and integrity of the financial reporting process and jeopardizes the integrity and objectivity of the auditing profession, especially auditors .
The 2017 Regulatory and Examination Priorities Letter1, published by FINRA on January 4th, is a fitting reminder of the resolve of Regulators to better execute their mission of investor protection and market integrity. Although the Libor and FX scandals might seem like distant memories, Regulators have continued on the war path. We would like to share some thoughts based on work we have been involved in last year. The idea is to help lawyers and banks have a grown-up discussion and be prepared if, or rather more likely, when, the Regulator knocks at the door.
The 2017 Regulatory and Examination Priorities Letter, published by FINRA on January 4th, is a fitting reminder of the resolve of Regulators to better execute their mission of investor protection and market integrity. Although the Libor and FX scandals might seem like distant memories, Regulators have continued on the war path. We would like to share some thoughts based on work we have been involved in last year in a regulatory competition investigation.
The 2017 Regulatory and Examination Priorities Letter1, published by FINRA on January 4th, is a fitting reminder of the resolve of Regulators to better execute their mission of investor protection and market integrity. Although the Libor and FX scandals might seem like distant memories, Regulators have continued on the war path. We would like to share some thoughts based on work we have been involved in last year. The idea is to help lawyers and banks have a grown-up discussion and be prepared if, or rather more likely, when, the Regulator knocks at the door.
Creative Accounting and Impact on Management Decision MakingWaqas Tariq
The study was conducted to appraise the impact of creative accounting on management decisions of selected companies listed in the Nigerian Stock Exchange. With the background, the main objective of the study includes the examination of the extent to which macro-manipulation of financial statement affects management decisions; to examine the extent to which macro-manipulation of financial statement affects share price performance; and to determine the impact of misreported assets and liabilities as well as making recommendations to help remedy some of the problems. The research method used was descriptive and the primary data collected were summarized and tabulated. These were picked in line with the hypothesis variables of the study so as to determine their validity. It was observed that the application of creativity in financial statement reporting significantly affects the decision of management to recapitalize the firm upward or dispose of it reserves. The study concluded that creative accounting through macro-manipulation of financial statements affects a firm’s price and capital market performance. In view of the study, the researcher recommended that the application of creative accounting on management decision should be to avoid misreporting of assets and liabilities in their financial report, and that management decision towards creative accounting should be geared towards the relative advantage principle and good corporate governance which encourage challenges to current ways of thinking and not manipulating for self interest.
Running head: RESEARCH
RESEARCH 3
Topic: Research
Student Name:
Institution:
Research Question
What are the root causes of obesity among children in the United States?
Problem Statement
A young person is not viewed as hefty until the weight is no less than 10 percent higher than what is prescribed for their tallness and body sort. Obesity most regularly starts between the ages of 5 and 6, or amid puberty. Examines have demonstrated that a kid who is stout between the ages of 10 and 13 has an 80 percent possibility of turning into a fat grown-up.
The reasons for obesity are unpredictable and incorporate hereditary, natural, behavioral and social elements. Obesity happens when a man eats a greater number of calories than the body smolders. On the off chance that one parent is fat, there is a 50 percent chance that his or her youngster will likewise be large. Be that as it may, when both guardians are large, their kids have an 80 percent shot of being fat. Albeit certain therapeutic issue can bring about obesity, under 1 percent of all obesity is brought on by physical issues.
Null Hypothesis
There is a 96.4% chance that an obese adult will give birth to an obese child.
Alternative Hypothesis
The probability of an obese parent giving birth to an obese child is less than 96.4%.
The independent variable is the variable we are occupied with. The progressions to the reliant variable are what we are attempting to gauge with all their favor procedures. In our exploration the reliant variable is the child's capacity to create obesity issues. We're attempting to quantify the adjustment in weight as impacted by dietary patterns. A dependent variable is a variable accepted to influence the independent variable. This is the variable that the scientist, will control to check whether it rolls out the independent variable improvement. In our investigation of obesity among youngsters, our autonomous variable is the recurrence of their dietary patterns.
The variables chosen are the parent, eating habits, genetics and behavioral aspects. These variables play an important role in determining the body growth of a child. The statement of the problem is the point of convergence of your exploration. It states what will be examinees, whether the research will be done through trial or non-trial examination, and what the motivation behind the discoveries will be. As a part of the Introduction, viable problem statements answer the question on why the research is being conducted.
Running head: Accounting Standard Setting in the Private Sector
4
a. Financial statements must provide a neutral scorecard of the effective of transactions
Money related explanations like the accounting report should along these lines give an unbiased scorecard of the impacts of exchanges. Speculators, banks, controllers, and different clients of the monetary reports settle on business and financial choices in view of data gave in money related proclam ...
Running head ETHICS IN ACCOUNTING1ETHICS IN ACCOUNTING.docxtodd271
Running head: ETHICS IN ACCOUNTING 1
ETHICS IN ACCOUNTING 2
Ethics in Accounting
Literature Review
Bobek, D., Hageman, A., & Radtke, R. (2015). The Effects of Professional Role, Decision Context, and Gender on the Ethical Decision Making of Public Accounting Professionals. Behavioral Research In Accounting, 27(1), 55-78. doi: 10.2308/bria-51090
In this article, the applied study investigates the scale to which professional roles, decision perspectives, and gender affect ethical decision making of governmental accountants. Considering they are in the same profession as other financiers and accountants; the outcomes of the study can still be implemented in the paper. Nevertheless, the study consisted of over 130 public accountants and concluded that the accountants had a lower probability of conceding with clients in an antagonistic situation. Moreover, they were also less likely to recommend yielding when they were auditing as compared to calculating taxes. It was also identified that, in the context of auditing, public accountants were less likely to yield to clients. When the data was broken down to their basic gender-based analysis, women seemed to demonstrate better decision-making abilities. Overall, the study was designed to estimate the likelihood of public accountants compromising their ethics and conducting activities that can be deemed illegal. By understanding the dynamics that result in unethical behaviors, policies could be developed to curb the probability of unethical professional conduct taking place.
When evaluating the ethical framework or the ethical training needs in the accounting department, managers should break down the entire process in terms of; the professional role of the accountants, the different contexts in which the accountant’s practice and type of gender involved in the accounting situations. Secondly, the management should consider whether the accountant is either an auditor or a tax professional, male or female and whether they operate in the audit or tax environment.
Burcham, J. (2015, August 06). Business Ethics From the Top Down Can Prevent Fraud. Retrieved from http://www.fightingidentitycrimes.com/business-ethics-from-the-top-down-can-prevent-fraud/
This article will provide information on why some individuals turn to fraud. It will provide insight on how certain situations push other employees to fraudulent activities. This reference revolves around the idea of “Tone at the Top”. Burcham’s article suggests that fraud can be caused by the actions of the higher executives in a company. The way executives portray ethical behavior manifests how the rest of the employees behave. Understandably, most people would agree on the importance of a job and career. Individuals work hard to keep their position once they are hired in position, they feel is suitable. When the executives are doing unethical tasks, it ends up trickling down to the rest of the employees as they are afraid t.
The Case This case was developed by the MIT Sloan School o.docxmehek4
The Case
This case was developed by the MIT Sloan School of Management. It is part of their
“Learning Edge,” a free learning resource. This case was prepared by John Minahan
and Cate Reavis. This case is based on actual events. Actual names are changed; some
of the narrative is fictional.
In early 2012, as he prepared to enter a meeting with the board of trustees of a
state pension fund, Harry Markham, CFA, couldn't help but feel professionally
conflicted.
Since earning his Master of Finance in 2004 at one of the top business schools in
the United States, Markham had worked for Investment Consulting Associates
(ICA), a firm that gave investment advice to pension funds.
Since joining the firm, Markham had grown increasingly concerned over how
public sector pension fund liabilities were being valued. If he valued the liabilities
using the valuation and financial analysis principles he learned in his Master of
Finance and CFA programs, he would get numbers almost twice as high as those
reported by the funds.
This would not be such a problem if he were allowed to make adjustments to the
official numbers, but neither his clients nor his firm was interested in questioning
them. The board did not want to hear that the fund's liabilities were much larger
than the number being captured by the Government Accounting Standards Board
(GASB) rules and his firm wanted to keep the board of trustees happy.
How, Markham wondered, was he supposed to give sound investment advice to
state treasurers and boards of trustees working from financials that he knew were
grossly misleading?
Markham's dilemma came down to conflicting loyalties: loyalty to his firm,
loyalty to the boards of trustees and others who made investment decisions for
public pensions and who, in turn, hired his firm to provide investment expertise,
and loyalty to the pensioners themselves, as Markham believed was called for by
the CFA Code of Ethics and Standards of Professional Conduct.
In his role as investment advisor, the differing views on how to value pension
liabilities challenged Markham on both a practical and an ethical level. "My role
is not to decide the value of liabilities," he explained.
That is the actuary's job. My role is to give investment advice. However, as an
investment advisor, the first thing you want to understand is the client's
circumstances. That is a basic ethical precept. The CFA professional standards
say you should never give advice without knowing what your client's
circumstances are. And so what happens is that we have these funds that are
grossly short of money, but the accounting does not show them as being grossly
short of money. I make the case within my firm that we need to know where we
are starting before we give advice. And perhaps our advice would be different if
the client knew they were starting from a multi-billion-dollar hole that they're
seemingly not aware of.
In addition to the fact ...
AlyousifName Mohammed AlyousifProfessor Conne FarrelCour.docxnettletondevon
Alyousif
Name :Mohammed Alyousif
Professor: Conne Farrel
Course:ENG-100
Date: 11/6/2016
Use of Blackout Periods to Curb Insider Trading
A couple of years back in 2012 a Manhattan office linked to the United States Attorney initiated criminal investigations to establish whether corporate executives from a list comprising of seven different companies engaged in insider trading by trading shares of their own company’s stock. Since then, it is uncommon to pick up a newspaper and miss an insider trading investigation. At a time when a former Yahoo executive pleaded guilty of committing a securities fraud, another trial was underway involving the director of Goldman Sachs who was accused of leaking insider information of both Procter & Gamble and Goldman Sachs to a friend.
In addition, former hedge fund Raj Rajaratnam has been convicted for insider trading proving that Securities and Exchange Commission is putting a lot of effort in investigating and prosecuting cases of insider trading. However, this does not help restore investor confidence in the financial sector. Some other corporate level strategies should be instituted to prevent governmental interventions in the issue. One such appropriate way is use of “blackout periods” to check flow of sensitive information during trading periods.
In all manner and fashion insider trading undermine investor confidence in relation to integrity and fairness of the securities market. Because of this, all jurisdictions around the world have legislations dealing with insider trading. Undisputedly, the United States has been the longest serving victim of the issue of insider trading. Most of the studies carried out on the issue are carried out in the US and some of the toughest legislations formed to deal with the matter originate from the United States of America (CFA Institute 4). Inside trading has a huge influence in the American financial market and other markets around the world.
The concept of insider trading has two major adverse effects. First, it injures investors by undermining their confidence regarding the financial markets of a company, country or a state. Regarding investors, inside trading makes them trade at a “wrong price.” In other words, an investor is duped to make a bad purchase or sale. Even though, this type of effect has been down played it has significant impacts on the change of perception of investors in any particular securities market. Secondly, inside trading injures Issuers this is because it will delay corporate plans by delaying transmission of information to provide sufficient time for manipulation of stock prices (Anderson 358). As a result, a company in question suffers massive reputation damage when the issue becomes common knowledge.
In addition, insider trading is plain theft. Therefore, inside trading is an issue to be addressed not only by the regulatory frameworks provided by the legislative bodies but also individual corporate initiatives. Form the statist.
Similar to Financial Manipulation: Words Don't Lie (20)
Authored by: David F. Larcker, Bradford Lynch, Brian Tayan, and Daniel J. Taylor, June 29, 2020
Investors rely on corporate disclosure to make informed decisions about the value of companies they invest in. The COVID-19 pandemic provides a unique opportunity to examine disclosure practices of companies relative to peers in real time about a somewhat unprecedented shock that impacted practically every publicly listed company in the U.S. We examine how companies respond to such a situation, the choices they make, and how disclosure varies across industries and companies.
We ask:
• What motivates some companies to be forthcoming about what they are experiencing, while others remain silent?
• Do differences in disclosure reflect different degrees of certitude about how the virus would impact businesses, or differences in management perception of its obligations to shareholders?
• What insights will companies learn to prepare for future outlier events?
Authored by: avid F. Larcker, Brian Tayan, CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI), April 2020
This Research Spotlight provides a summary of the academic literature on board composition, quality, and turnover. It reviews the evidence of:
The appointment of outside CEOs as directors
The importance of industry expertise to performance
The relation between director skills and performance
The stock market reaction to director resignations
Whether directors are penalized for poor oversight
This Research Spotlight expands upon issues introduced in the Quick Guide Board of Directors: Selection, Compensation, and Removal.
David F. Larcker and Brian Tayan, April 21, 2020, Stanford Closer Look Series
Little is known about the process by which pre-IPO companies select independent, outside board members—directors unaffiliated with the company or its investors. Private companies are not required to disclose their selection criteria or process, and are not required to satisfy the regulatory requirements for board members set out by public listing exchanges. In this Closer Look, we look at when, why, and how private companies add their first independent, outside director to the board.
We ask:
• Why do pre-IPO companies rely on very different criteria and processes to recruit outside directors than public companies do?
• What does this teach us about governance quality?
• How important are industry knowledge and managerial experience to board oversight?
• How important are independence and monitoring?
• Does a tradeoff exist between engagement and fit on the one hand and independence on the other?
Authored by David F. Larcker and Brian Tayan, April 1, 2020, Stanford Closer Look Series
We examine the size, structure, and demographic makeup of the C-suite (the CEO and the direct reports to the CEO) in each of the Fortune 100 companies as of February 2020. We find that women (and, to a lesser extent, racially diverse executives) are underrepresented in C-suite positions that directly feed into future CEO and board roles. What accounts for this distribution?
By John D. Kepler, David F. Larcker, Brian Tayan, and Daniel J. Taylor, January 28, 2020
Corporate executives receive a considerable portion of their compensation in the form of equity and, from time to time, sell a portion of their holdings in the open market. Executives nearly always have access to nonpublic information about the company, and routinely have an information advantage over public shareholders. Federal securities laws prohibit executives from trading on material nonpublic information about their company, and companies develop an Insider Trading Policy (ITP) to ensure executives comply with applicable rules. In this Closer Look we examine the potential shortcomings of existing governance practices as illustrated by four examples that suggest significant room for improvement.
We ask:
• Should an ITP go beyond legal requirements to minimize the risk of negative public perception from trades that might otherwise appear suspicious?
• Why don’t all companies make the terms of their ITP public?
• Why don’t more companies require the strictest standards, such as pre-approval by the general counsel and mandatory use of 10b5-1 plans?
• Does the board review trades by insiders on a regular basis? What conversation, if any, takes place between executives and the board around large, single-event sales?
Short summary
We identify potential shortcomings in existing governance practices around the approval of executive equity sales. Why don’t more companies require stricter standards to lessen suspicion around insider equity sales activity? Do boards review trades by insiders on a regular basis?
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative,
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide takes an in-depth look at the Principles of Corporate Governance.
Authors: David F. Larcker and Brian Tayan, Stanford Closer Look Series, November 25, 2019
Among the controversies in corporate governance, perhaps none is more heated or widely debated across society than that of CEO pay. The views that American citizens have on CEO pay is centrally important because public opinion influences political decisions that shape tax, economic, and regulatory policy, and ultimately determine the standard of living of average Americans. This Closer Look reviews survey data of the American public to understand their views on compensation. We ask:
• How can society’s understanding of pay and value creation be improved and the controversy over CEO pay resolved?
• How should the level of CEO pay rise with complexity and profitability, particularly among America’s largest corporations?
• Should pay be reformed in the boardroom, or should high pay be addressed solely through the tax code?
• Are negative views of CEO pay driven by broad skepticism and lack of esteem for CEOs? Or do high pay levels themselves contribute to low regard for CEOs?
By David F. Larcker and Brian Tayan
CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2019.
In fall 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of In October 2019, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 3,062 individuals—representative by age, race, political affiliation, household income, and state residence—to understand the American population’s views on current and proposed tax policies.
Key findings include:
--Tax rates for high-income earners are about right
--Majority favor a wealth tax … but not if it harms the economy
--Americans do not want to set limits on personal wealth
--Americans do not believe in a right to universal basic income
--Trust in the ability of the U.S. government to spend tax dollars effectively is low
--Americans believe in higher taxes for corporations who pay their CEO large dollar amounts
--Little appetite exists to break up “big tech”
By David F. Larcker, Brian Tayan, Dottie Schindlinger and Anne Kors, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance and the Diligent Institute, November 2019
New research from the Rock Center for Corporate Governance at Stanford University and the Diligent Institute finds that corporate directors are not as shareholder-centric as commonly believed and that companies do not put the needs of shareholders significantly above the needs of their employees or society at large. Instead, directors pay considerable attention to important stakeholders—particularly their workforce—and take the interests of these groups into account as part of their long-term business planning.
• While directors are largely satisfied with their ESG-related efforts, they do not believe the outside world understands or appreciates the work they do.
• Directors recognize that tensions exist between shareholder and stakeholder interests. That said,
most believe their companies successfully balance this tension.
• In general, directors reject the view that their companies have a short-term investment horizon in
running their businesses.
In the summer of 2019, the Diligent Institute and the Rock Center for Corporate Governance at Stanford University surveyed nearly 200 directors of public and private corporations globally to better understand how they balance shareholder and stakeholder needs.
by David F. Larcker and Brian Tayan, Stanford Closer Look Series, October 7, 2019
A reliable system of corporate governance is considered to be an important requirement for the long-term success of a company. Unfortunately, after decades of research, we still do not have a clear understanding of the factors that make a governance system effective. Our understanding of governance suffers from 1) a tendency to overgeneralize across companies and 2) a tendency to refer to central concepts without first defining them. In this Closer Look, we examine four central concepts that are widely discussed but poorly understood.
We ask:
• Would the caliber of discussion improve, and consensus on solutions be realized, if the debate on corporate governance were less loosey-goosey?
• Why can we still not answer the question of what makes good governance?
• How can our understanding of board quality improve without betraying the confidential information that a board discusses?
• Why is it difficult to answer the question of how much a CEO should be paid?
• Are U.S. executives really short-term oriented in managing their companies?
David F. Larcker, Brian Tayan, Vinay Trivedi, and Owen Wurzbacher, Stanford Closer Look Series, July 2, 2019
Currently, there is much debate about the role that non-investor stakeholder interests play in the governance of public companies. Critics argue that greater attention should be paid to the interest of stakeholders and that by investing in initiatives and programs to promote their interests, companies will create long-term value that is greater, more sustainable, and more equitably shared among investors and society. However, advocacy for a more stakeholder-centric governance model is based on assumptions about managerial behavior that are relatively untested. In this Closer Look, we examine survey data of the CEOs and CFOs of companies in the S&P 1500 Index to understand the extent to which they incorporate stakeholder needs into the business planning and long-term strategy, and their view of the costs and benefits of ESG-related programs.
We ask:
• What are the real costs and benefits of ESG?
• How do companies signal to constituents that they take ESG activities seriously?
• How accurate are the ratings of third-party providers that rate companies on ESG factors?
• Do boards understand the short- and long-term impact of ESG activities?
• Do boards believe this investment is beneficial for the company?
By David F. Larcker, Brian Tayan, Vinay Trivedi and Owen Wurzbacher, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, July 2019
In spring 2019, the Rock Center for Corporate Governance at Stanford University surveyed 209 CEOs and CFOs of companies included in the S&P 1500 Index to understand the role that stakeholder interests play in long-term corporate planning.
Key Findings
• CEOs Are Divided On Whether Stakeholder Initiatives Are A Cost or Benefit to the Company
• Companies Tout Their Efforts But Believe the Public Doesn’t Understand Them
• Blackrock Advocates … But Has Little Impact
By David F. Larcker, Brian Tayan
Core Concepts Series. Corporate Governance Research Initiative, June 2019
A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide will take an in-depth look at Shareholders and Activism.
By Brandon Boze, Margarita Krivitski, David F. Larcker, Brian Tayan, and Eva Zlotnicka
Stanford Closer Look Series
May 23, 2019
Recently, there has been debate among corporate managers, board of directors, and institutional investors around how best to incorporate ESG (environmental, social, and governance) factors into strategic and investment decision-making processes. In this Closer Look, we examine a framework informed by the experience of ValueAct Capital and include case examples.
We ask:
• What is the investment horizon prevalent among most companies today?
• Do companies miss long-term opportunities because of a focus on short-term costs?
• How many companies have an opportunity to profitably invest in ESG solutions?
• What factors determine whether a company can profitably invest in ESG solutions?
• Can investors earn competitive risk-adjusted returns through ESG investments?
• If so, how widespread is this opportunity?
This Research Spotlight provides a summary of the academic literature on environmental, social, and governance (ESG) activities including:
• The relation between ESG activities and firm value
• The impact of environmental and social engagements on firm performance
• The market reaction to ESG events
• The relation between ESG and agency problems
• The performance of socially responsible investment (SRI) funds
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
This Research Spotlight provides a summary of the academic literature on how dual-class share structures influence firm value and corporate governance quality. It reviews the evidence of:
• The relation between dual-class shares and governance quality
• The relation between dual-class shares and tax avoidance
• The relation between dual-class shares and firm value and performance
This Research Spotlight expands upon issues introduced in the Quick Guide “The Market for Corporate Control.”
By Courtney Hamilton, David F. Larcker, Stephen A. Miles, and Brian Tayan, Stanford Closer Look Series, February 15, 2019
Two decades ago, McKinsey advanced the idea that large U.S. companies are engaged in a “war for talent” and that to remain competitive they need to make a strategic effort to attract, retain, and develop the highest-performing executives. To understand the contribution of the human resources department to company strategy, we surveyed 85 CEOs and chief human resources officers at Fortune 1000 companies. In this Closer Look, we examine what these senior executives say about the contribution of HR to the strategic efforts and financial performance of their companies.
We ask:
• What role does HR play in the development of corporate strategy?
• Does HR have an equal voice or is it junior to other members of the senior management team?
• Do boards see HR and human capital as critical to corporate performance?
• How do boards ascertain whether management has the right HR strategy?
• How adept are companies at using data from HR systems to learn what programs work and why?
By David F. Larcker and Brian Tayan, Stanford Closer Look Series, December 3, 2018
Companies are required to have a reliable system of corporate governance in place at the time of IPO in order to protect the interests of public company investors and stakeholders. Yet, relatively little is known about the process by which they implement one. This Closer Look, based on detailed data from a sample of pre-IPO companies, examines the process by which companies go from essentially having no governance in place at the time of their founding to the fully established systems of governance required of public companies by the Securities and Exchange Commission. We examine the vastly different choices that companies make in deciding when and how to implement these standards.
We ask:
• What factors do CEOs and founders take into account in determining how to implement governance systems?
• Should regulators allow companies greater flexibility to tailor their governance systems to their specific needs?
• Which elements of governance add to business performance and which are done only for regulatory purposes?
• How much value does good governance add to a company’s overall valuation?
• When should small or medium sized companies that intend to remain private implement a governance system?
By David F. Larcker, Brian Tayan, CGRI Survey Series. Corporate Governance Research Initiative, Stanford Rock Center for Corporate Governance, November 2018
In summer and fall 2018, the Rock Center for Corporate Governance at Stanford University surveyed 53 founders and CEOs of 47 companies that completed an Initial Public Offering in the U.S. between 2010 and 2018 to understand how corporate governance practices evolve from startup through IPO.
David F. Larcker, Stephen A. Miles, Brian Tayan, and Kim Wright-Violich
Stanford Closer Look Series, November 8, 2018
CEO activism—the practice of CEOs taking public positions on environmental, social, and political issues not directly related to their business—has become a hotly debated topic in corporate governance. To better understand the implications of CEO activism, we examine its prevalence, the range of advocacy positions taken by CEOs, and the public’s reaction to activism.
We ask:
• How widespread is CEO activism?
• How well do boards understand the advocacy positions of their CEOs?
• Are boards involved in decisions to take public stances on controversial issues, or do they leave these to the discretion of the CEO?
• How should boards measure the costs and benefits of CEO activism?
• How accurately can internal and external constituents distinguish between positions taken proactively and reactively by a CEO?
More from Stanford GSB Corporate Governance Research Initiative (20)
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Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
1. Topics, Issues, and Controversies in Corporate Governance and Leadership
S T A N F O R D C L O S E R L O O K S E R I E S
stanford closer look series 1
Financial Manipulation: Words Don’t Lie
Integrity of Financial Statements
Reliable financial reporting is critical to the efficien-
cy of capital markets. When financial statements are
prepared according to sound accounting principles,
investors are able to make informed investment de-
cisions and either buy or sell assets at prices that are
appropriate given their potential risk and return.
When financial statements are unreliable—either
because of intentional or unintentional misrepre-
sentation—investment decisions will suffer and as-
set prices will be inappropriate given their prospects
for future return. As a result, accurate and trans-
parent disclosure is essential to a well-functioning
capital market.
Despite the importance of accurate financial re-
porting, management may have incentive to mis-
represent financial results for personal gain. For
example, management may be tempted to inflate
current period results in order to increase the size of
a performance bonus. They may also do so in order
to beat Wall Street estimates for quarterly earnings
to boost the company’s share price and increase the
value of their equity holdings. Even in the absence
of financial payment, management may gain psy-
chological rewards from inflating corporate returns,
in the form of positive press coverage and the ad-
miration of peers. While sound governance systems
are expected to have controls in place that prevent
or detect such maneuvers, they may not always be
effective.1
Methods for Detecting Financial
Manipulation
Many academics and professionals have attempted
to develop models that detect aggressive or fraudu-
lent accounting. These models tend to analyze the
By David F. Larcker and Brian Tayan
July 23, 2010
discrepancy between the cash generated by the op-
erating, investment and financial activities of the
firm and the earnings reported under accrual ac-
counting. When reported earnings diverge from the
cash generated by the business, it may be indicative
of manipulation by management.2
Some models
also incorporate information on the structural at-
tributes of the company’s governance system. Still,
these efforts tend to have limited success. To our
knowledge, no one has yet developed a quantitative
model that consistently and reliably predicts finan-
cial manipulation.3
There is some evidence that quantitative models
may be improved through the application of tech-
niques developed by linguists and psychologists to
identify deceptive language and behavior.4
These
methods rely on the analysis of linguistic patterns
and nonverbal cues to evaluate whether individu-
als are being truthful. Individuals who are trying to
deceive others may exhibit distinct styles of speech,
including language that disassociates themselves
from their subject matter. They may speak in gen-
eralities rather than specifics and give responses that
are indirect or vague. They may also be marked by
caution, nervous behavior, or avoidance of eye con-
tact.5
There are several prominent examples of such
behavior. Take, for example, Sanjay Kumar, former
CEO of Computer Associates. In a 2001 television
interview, Kumar was asked a series of questions
about the company’s accounting practices, which
were first coming under scrutiny. Rather than di-
rectly state that the company’s methods were appro-
priate, Kumar’s responses were evasive: “You can’t
hide [behind] GAAP. GAAP accounting rules are
the ones that we all live by and they are very strict.”
3. stanford closer look series 3
Financial Manipulation: Words Don’t Lie
Exhibit 1 — Interview with Sanjay Kumar, CEO of Computer Associates (April 2001)
Bill Griffeth (CNBC): […] Before we get to the specific charges, why do you think these employees would say
what they did about your accounting practices?
Sanjay Kumar: Well, I mean, you know, I don’t want to play tit for tat with the New York Times, because (un-
intelligible) somebody who buys paper by the barrel, but let me tell you, there is not a single named employ-
ee source in there, there’s not a single Wall Street analyst named in the article. To me that is just incredible
that the New York Times, a paper of record, would write a story like this without talking to a single account-
ing source, and he talks to two customers. […] So I’m not sure where the factual reporting is for the story.
Griffeth: And in the big picture, I mean, the charge that you are trying to mask a decline in sales, I mean,
when you are saying that revenues are up, I mean it comes at a time when everybody is, you know, falling
on hard times, especially for information technology spending. I mean there is nothing wrong in this climate
with having a declining sales rate right now.
Kumar: Well, you are right, there is nothing wrong with it, and we, like everybody else, are seeing tough
economic times. You can refer to our April 16th press release where we talked about the fourth fiscal quarter.
We clearly said economic times are tough, but we are doing better. […] Part of the difference here is our new
business model. […] If you look at our press release, in the body of the press release is a very clear sentence
that says we also signed $1.3 billion of backlog in the quarter that under the new business model will come
into revenue in the future. That is $1.3 billion more than reported revenue that we signed. These are com-
mitted customer contracts, signed, done, signed, sealed and delivered, that doesn’t come into the [current]
period, and to leave that out, I think, is just unfair.
Griffeth: But there is a question posed in the article of how much of what you have booked was maintenance
business as opposed to actual new software business.
Kumar: That’s right, and we said very clearly today that our maintenance numbers conformed to GAAP
accounting, our maintenance numbers conform to accounting statements of position of 972 and 989 of a
technical pronouncement...
Griffeth: With all due respect, Sanjay, you can hide behind GAAP accounting methods. Is there a possibility
that it is easy to perhaps confuse maintenance business from new software contracts?
Kumar: No, you can’t hide [behind] GAAP. GAAP accounting rules are the ones that we all live by and they
are very strict. We had both KPMG and [Ernst & Young] yesterday restate that they are ok with our numbers.
We have taken the unusual step of getting an attestation to our pro forma numbers. I don’t think there’s re-
ally any confusion at all with respect to the numbers. And we also, by the way, further details on our call this
morning and there’s information on our Web site as to why our maintenance numbers are in the range, but
at the low end of the range, of software companies. And it’s a perfectly plausible answer. We don’t need to
have maintenance numbers like anybody else, but we are not doing anything wrong fundamentally in our
business.
[…]
Griffeth: I’m running out of time, unfortunately, but for the record, have you been contacted by anybody
connected at all with the SEC about any possible investigation, whether it has, in fact, begun or whether they
are in formal inquires about your accounting practices?
Kumar: No, sir. […] I, my general counsel and CFO have no knowledge whatsoever of any SEC investigation.
Griffeth: Any thoughts of taking action on this on your part?
Kumar: Well, I think we have to do what’s right for the company. Today we want to clarify our business
model, defend what’s right for the company and defend our shareholders. I am most concerned about share-
holder value and
I think ultimately the truth will prevail. […]
Griffeth: Mr. Kumar, thank you for taking the time to chat with us.
Source: “Computer Associates: CEO Interview,” CNBC/Dow Jones Business Video, Apr. 30, 2001.
4. stanford closer look series 4
Financial Manipulation: Words Don’t Lie
Exhibit 2 — Erin Callan, CFO of Lehman Brother – Selected Comment (March 2008)
Erin Callan, CFO:
Source: Lehman Brothers, Q1 2008 Earnings Conference Call,” FD (Fair Disclosure) Wire, Mar. 18, 2008.
“we did see very strong client flows and a robust trading environment”
“our strong core client activity”
“our corporate derivative revenues were very strong”
“very, very strong high grade underwriting activity”
“we continue to have a strong underwriting position with financial institutions”
“we had strong client revenues”
“incredibly strong client activity”
“a very strong performance out of the underlying franchise”
“results in fixed income continue to be very strong in Asia”
“we expect customer activity to stay strong”
“we do have a very strong disciplined program of how we would take assets down on the balance sheet”
“incredibly productive group of people for the firm.”
“an incredibly good statement about the strength and confidence of our franchise”
“an area which we have done incredibly well in and feel well positioned going forward”
“it’s just incredibly attractive”
“our ability to access that form of financing to do more business with clients is incredibly interesting”
“incredibly well received, great participation, great oversubscription”
“we continue to do a very, very good job managing the risk on residential mortgages, an area that I think
we’re credited with a lot of expertise, a great franchise”
“great client franchise performance”
“a great amount of transparency on the balance sheet”
“just great progress in continuing to move those back at higher prices”
“great for our trading businesses”
“a great opportunity to do more client business”
5. stanford closer look series 5
Financial Manipulation: Words Don’t Lie
Source: Bally Total Fitness, “Investor Call,” FD (Fair Disclosure) Wire, Jul. 13, 2005.
Exhibit 3 — Bally Total Fitness: Earnings Conference Call (July 2005)
Excerpted comments from the Q&A
Denise Culm, analyst: I have a question regarding cash flow from operations. […] Cash flow from operations
for May [is] a couple of million dollars lower than it was versus March and then also versus February. I wonder
if there are some items such as higher interest cost or higher legal expenses that we should be aware of when
I look at the number?
Paul Tobak, CEO: Yes. I think that you, certainly, and I think we talked about this a little bit on the last call.
There are higher interest costs this year. I think both the things you said are right. And there are higher
amounts, as I said in my opening remarks, of expenses associated with what we’d say are non-operational
issues such as restructuring costs and investigation related costs.
So both of those things absolutely are affecting it. I think the key thing to be looking at and that we’re look-
ing at is that the cash from operations over the five month period is up and the free cash flow is substantially
improved over last year.
[…]
Kevin Buckle, analyst: You haven’t given any details at all on the private training area, which is also a specific
part of your business as well. Can you give us some sense in the first five months what the trend has been
there on a top line year-over-year basis?
Paul Tobak: Yes. It’s hard to give that data, again, until we get the GAAP numbers done. All I can tell you is
that we’re certainly still seeing growth in personal training. But in order to quantify it and give the year-over-
year, there’s a fair amount of complexity still tied up in the accounting. So that’s why we have unfortunately
not released that data. But it’s still growing.
Kevin Buckle: Is it meeting your internal budget expectations?
Paul Tobak: Hard to say. I guess I’d say that said another way, yes. We’re not disappointed with where per-
sonal training is right now. It’s still on a major part of our strategy.