Role of Accounting in Organizational Collapses:
I have learned from the past academic and professional experience, that accounting plays vital role in organization collapses. This is caused due to intentional manipulations and misstatements by the staff involved in accounting operations organizations. Example of accounting scandals or accounting fraud includes world com scandal 2002, Enron scandal, the Tyco Scandal etc. In World Com Scandal, the accounts and finance department of company have deflated the company assets by $11 billion as in 2002 (AD, 2018). Due to this kind of manipulation the adverse market outcomes were faced by the company and its investors like 30000 job loss and the financial loss to investors amounting to $180 billion. The main player in this fraud was the CEO of company at that company named as Bernie Ebbers.
The scandal of Enron took place in 2001. Under this scandal, the players of this scandal kept the huge debt off the balance sheet. The main players of this fraud were former CEO Ken Le and CEO Jeff Skilling. Due to this scandal, the shareholders of company have faced a loss of $74 billion. In addition to this, Arthur Anderson was also found guilty of fudging key business accounts of Enron (AD, 2018). This fraud or scandal has also caused different results like loss of retirement accounts to different investors and employees, loss of jobs to different employees etc. On the basis of analysis of different scandals, I think that accounting has very major role in different organizational collapses.
From the past experience, I have learned that there are different types of ways, in which accounting is responsible for the organizational collapses. Example of these ways involves tax avoidance, personal purchases, falsification of the financial statements, payroll frauds like existence of ghost employees, creation of fraudulent financial statements etc (Quillian, 2017). Occurrence of these accounting scandals damages the brand image and public image of company in the market. Failure of organization in timely recognition of these scandals may lead to even organizational collapse in the industry.
Recommendations to Avoid Accounting Scandals:
In my opinions, there should be internal audit activities in the organizations to avoid accounting scandals. Along with this, the internal audit department of the organization must be independent from accounting or other departments of organization. There should be power in the hands of auditors to make inspection of any account and any employee irrespective of his or her position within the organization. This can help to avoid the accounting scandals within the organization. Setting-up of whistleblower policy can also help the organization to motivate its employees to inform the upper management of company regarding any suspicious activities taking place within the organization (Reed, 2014). For this purpose, an email address should be developed that is handled by independent authority of the organization that deals for fraud prevention goals within the organization. Apart from these, the designing and implementation of effective internal control mechanism can help to avoid occurrence of accounting scandals in organizations.
AD (2018) The 100 Worst Corporate Accounting Scandals of All Time. [Online]. Available at: https://www.accounting-degree.org/scandals/ (Accessed: 23 May 2018).
Quillian, J.P. (2017) 6 Examples of Accounting Fraud in the United States. [Online]. Available at: https://oklahomacitylegalgroup.com/6-examples-of-accounting-fraud-in-the-united-states/ (Accessed: 23 May 2018).
Reed, S. (2014) Six Strategies for Fraud Prevention in Your Business. [Online]. Available at: https://www.cgteam.com/blog/six-strategies-for-fraud-prevention-in-your-business (Accessed: 23 May 2018).