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Accounting in news
Accounting in news
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BAO5535- Accounting in News 1 (due in week 4) Tek.Lama@vu.edu.au Save to OneDrive – Victoria University You probably are aware by now that your First Accounting in News (AIN 1) assessment is due in week 4. It is important that you go through VU collaborate, be familiar with unit study guide, to be on the top of what assessments are due and when. Anyway, some of you asked me to provide advice on the contents and format. Here are some general guidelines: – Can be any news article featured in News paper or website which related to accounting and/or finance related issues (note that article chosen that is nothing to do with accounting and/or finance will be marked down severely. – Then summarize the news – what happened and most importantly why had it happened? (You must use literature evidence and.or provide your own logical and considered arguments given the nature of the case) – Then critically discuss the Accounting significance of the news – accounting failure, accounting deficiency, accounting controversy, accounting reform (proposition) or whatever. This is another key part of the assessment. Note that this is investigative (research) and academic assessment and therefore you are expected to use considerable literature evidences to support your argument or discussion which must also be acknowledged by having appropriate citation and referencing. Make sure that you include ‘Full news article’ in the appendix for me to go through. I am attaching a reasonably good work of previous semester student as a sample to give you some idea. You must use this as reference point only NOT as the template and try to copy it. |
ACCOUNTING IN THE NEWS BAO5535 ISSUES IN CONTEMPORARY ACCOUNTING Accounting in the News P a g e 1 | 3 Toshiba Accounting Scandal On July 21 2015, news broke across the world that Toshiba had overstated operating profits by USD$1.2 billion. This misstatement was material, accounting for approximately one third of Toshiba’s profit (Waldron, 2015). This “accounting irregularity” amounts to financial reporting fraud. Furthermore, the overstating of profit is reported to have happened under three different CEOs over a period of six years. The financial reports of Toshiba had been audited throughout this period and Ernst & Young ShinNihon, the auditors, found no material misstatement during that time. It is also an interesting fact of the case that the fraud was not the result of a direct instruction from the executive team, as cited by one source “CEOs did not directly instruct anyone to cook the books but rather placed immense pressure on subordinates and waited for the corporate culture to turn out the results they wanted” (Investopedia, 2015). To my view it implies that there were a wide array of different forms of financial reporting fraud perpetrated by diffent business managers and all, it seems, went undetected. The discovery of the fraud was prompted by investigation from the financial regulators, but was actually identified by a committee of experts hired Toshiba themselves, suggesting perhaps this could have continued even further Japanese regulation. Calls have been made to the Japanese government to increase the level of corporate governance required of its corporations, however, it appears that Toshiba had superficially adhered to all the required standards of corporate governance (e.g. number of directors on the different boards) set out by Japanese regulations Implication for accounting profession and accounting standards In both Japan and Australia (both adopters of the IFRS) a great deal of resource is invested across government, independent regulatory bodies (e.g. ASIC, ASX) and corporations themselves on maintaining “compliant” financial reporting and appropriate interpretation of the accounting standard. Many millions are also spent auditing of the financial reports. So the modern financial report is prepared by professional accountants, endorsed by million dollar salaried executives and again ‘assured’ by financial auditing firms for untold sums of money. And for what? to protect the investors. Yet in the case at hand, and many others, all of these mechanisms failed to prevent the loss to investors. The Toshiba shares lost circa 20% of their value over the period during which the scandal unfolded (Alpeyev & Amano, 2015) and lucky for the investors, the misstatement did not threaten the going concern assumption for Toshiba. From a cynical perspective, the Accounting standards and framework do little more than offer a symbolic assurance to the market. In reality they have done nothing to prevent the collapse of Enron, the Global Financial Crisis (GFC) or billion dollar overstatements at Toshiba. It has been suggested by Prof. Russell Craig (2001) that the International Financial Reporting Standards (IFRS) almost facilitate misleading financial reports by their complexity and allowance of assets and income streams that only are meaningful in the accounting context (e.g. deferred tax assets). There doesn’t appear to be a clear solution to the issue. Suggestion that financial reporting standards should be in the hands of the free market appear unworkable give the possibility of market collapse and a lack of a minimum standard. Higher levels of accounting regulation do not appear to yield result either. Perhaps, the issues as Prof. Craig points out is the need for greater transparency in the existing standards. P a g e 2 | 3 References Alpeyev, P. & Amano, T., 2015. Bloomberg. [Online] Available at: http://www.bloomberg.com/news/articles/2015-07-21/toshiba-executives-resign-over-1-2-billionaccounting-scandal [Accessed 21 8 2015]. Craig, R., 2001. Accounting Standards don’t add up. The Canberra Times, 1 September, p. C4. Investopedia, 2015. Toshiba’s Accounting Scandal: How It Happened. [Online] Available at: http://www.investopedia.com/articles/investing/081315/toshibas-accounting-scandal-how-ithappened.asp [Accessed 20 8 2015]. Toshiba Corporation, 2014. Toshiba Annual Report 2014, Tokyo: Toshiba. Waldron, M., 2015. CFA Institute. [Online] Available at: http://blogs.cfainstitute.org/marketintegrity/2015/07/28/toshiba-accounting-scandal-shouldauditor-ernst-young-shinnihon-get-a-mulligan/ [Accessed 21 8 2015].
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