The recent financial reporting failures that have come to the foreground are due to the following factors. The write-up discusses why such failures took place and also gives examples for the same.
Financial reporting failures begin with inaccurate reporting at the preparation level itself. Be it deliberate or unknowing, the firms’ failure to prepare financial statements accurately is putting stability and future of the financial world in jeopardy (Bhattacharya, 2006). As per our finance assignment help online experts , after the analysis of the financial statements of 49 law companies belonging to the UK market has revealed that 20 percent of these companies have such accounting policies that conflict with the treatment of figures in the profit and loss account and balance sheet, while a further 10% are unclear because of inadequate narratives, according to a new report released on 22 November 2010 (Grant Thornton, 2010). Such a poor level of reporting has potential effect on banking relationships and funding opportunities of the subject companies.
Lack of internal controls
Lack of internal controls has had severely negative effect on financial reporting levels in the recent past. A glaring example of this is the 10-K filed by Costco Wholesale in Oct 16, 2009, where it clearly accepts that fact that it was due to their failure of internal controls over the way financial reporting took place, otherwise they could have reported accurate reports in timely manner as per the analysis done by our Financial Management Assignment Help team. Internal controls over financial reporting includes maintaining records in reasonable details to reflect each transaction fairly, providing reasonable assurance to the user of records that receipts and expenditures of assets have been made in accordance with the authorization of the management and that the usage of or the disposal of any assets would be made or has been made in such a manner that any related transactions that could have material effect on the financial statements would be made with utmost care and any wrongful use and disposition would be detected and avoided in the timely manner.
Companies themselves admit that internal controls are inherently limited and thus cannot provide absolute assurance that any misstatements can be ruled out and any such inability would necessarily lead to financial reporting failure (Botzem, 2012).
Fudging of accounts
Deliberate fudging of accounts, as in case of Satyam Technologies, a giant Indian IT company, is a renowned case of financial reporting failure of recent times and also one of the most analyzed work by our corporate finance assignment help team. On January 2009, the CEO of the public company, Mr Ramalinga Raju, confessed to the shareholder, serious frauds committed in accounts and revealed that it added upto Rs 7800 crore (Papadopoulos, 2011). He revealed in his letter that his attempt to buy Maytas companies was his last attempt to “fill fictitious assets with real ones”. He admitted in his letter, “It was like riding a tiger without knowing how to get off without being eaten”. Satyam’s promoters, two brothers B Ramalinga Raju and B Rama Raju were arrested by the State of Andhra Pradesh police and the Central government took control of the tainted company. The brothers were then booked for breach of trust, cheating, criminal conspiracy and forgery under the Indian Penal Code (Steve, 2010).
Lack of external audits
Lack of external audits was also confessed by PWC pr Price Waterhouse Coopers. The company admitted that the audit report is submitted was wrong and that it was based on wrong financial statements provided by the management at Satyam (Steve, 2010). In 2009, the Chief Financial Officer of Satyam also confessed that he had fudged the number of employees and showed an increase of 10, 000, which, the external auditors also confessed to. Such a confession by a reputed external auditor indicates a widespread lack of ethics in external audit industry. You can get more ideas about this from our expert of auditing assignment help team. (Margarida & Faustino, 2008).
Financial reporting failures have left a mark on the face of the financial industry for centuries to come, corporate governance, a subject unheard of, just few years back, has come to the forefront of study and analysis just due to lack of proper financial reporting (Oppermann, 2009).
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