Question

Enron, WorldCom, Parmalat, Royal Ahold, Nortel, Tyco— the list goes on. We’ve heard the names and seen the demise of a once highly trusted public accounting firm. Can the numbers really be trusted? Are the temptations to deceive just too great?

I need about 300 words, thanks.

Answer 1

A large number of scams have happened which have lead to the downfall of many trusted companies.

Primary default if of companies as they misused the public money for their personal gains. However, it is the duty of public accounting firms to make sure everything is proper and any frauds that are happening are reported. At times, the temptation to deceive is far more great than reporting.

These companies often bribe public accounting firms to not report the misrepresentations in the company. The bribe can be by way of monetary or non monetary benefits. These bribes have often lead to non reporting or frauds and hence lead to downfall.

In such scenario, it is the public that is at loss since they lose there money. Public has trusted these companies with their money. And public accounting firms are also employed only after approval of shareholders. Thus, shareholders have also trusted the accounting firms to report any frauds to shareholders. However, it is the management that interacts with public accounting firms. They convince these firms by lies and hence leads to non reporting.

However, recently SEC has made more regulations for reporting. Earlier, the accounting firms survived even after non reporting. Now they can no longer survive and it becomes necessary for them to report everything. These firms might lose their license if they don't report any fraud. Hence, though the temptation in current scenario to deceive is great, the present norms, fines and penalties make it almost impossible for public accounting firms to do so.

Also, large number of public accounting firms have vanished into the thin air because of such acts. The firms today are much more aware and take into consideration the consequences they can face because of their acts. These make it necessary for them to follow accounting rules and their reporting. It is not for the management that they are working, it is for the shareholders. And now a days, they have realised this. Earlier this message was forgotten hence we see big names fall off.

So no matter the public accounting firms try they cannot get away with SEC. Hence, it is difficult to non report the frauds in public companies. However, the same still happens in other form of entries where public is not interested.

But, the temptation to deceive is great in paper, in real life the public accounting firms are kuch kore aware and hence we rarely see great names falling off in today's scenario.