What are accounting scandals?
Accounting scandals appear when an entity, usually corporation, but sometimes a government agency or charity, intentionally and illegally changes their books for the financial advantage of corporation or some selected groups of individuals. These scandals often include overvaluation of assets or profits, hiding or underestimation of liabilities, masking the actual corporation structure, or facilitate trading of initiated persons, or other types of illegal or unethical financial transactions. The dubious accounting procedures themselves do not guarantee that the scandal will explode. Investors, regulators or guard groups actually appear only if these practices are detected scandals.
market economies work well only if investors have access to accurate data on corporations in which they can decide to take over the share. Corporations and their executives can gain a personal advantage of manipulating information provided to investors. The true information on the value of MOHOu raise the price of the company's shares and allow initiates to sell your shares or cash on the option for an inflated value. The scandal surrounding the 2001 Enron collapse included this diversity of incorrect management.
The common diversity of the scandal involves deliberate distortion of the company's financial health. This can be done simply by maintaining more sets of books, but modern accounting scandals of this kind have moved around more complex practices. In some cases, two corporations will nomineally exchange assets and both will be able to claim a financial transaction on their lower line while no real business has been carried out. Shell Corporations are sometimes used for stock liabilities, allowing parent companies to look stronger than in reality.
other accounting scandals feature more direct production. The collapse of the Bernard Madoff Financial Empire revealed that the whole investmentBusiness was basically a huge and carefully organized pyramid scheme. In this case, creative accounting concealed the fact that Madoff's company never dealt with the market trading, but simply used the fund's contributions from new shareholders to pay older shareholders.
Accountants and audit companies are often used to monitor corporation books. In the most serious accounting scandals, these companies can also be involved in the crime itself, or it is simply not possible to adequately follow the finances of companies under their supervision. ENRON's finances were under external observation, but it has been shown that it does not provide any protection.
It is worth noting that accounting scandals can appear in any economy based on money, not only in the western. Mikhail Khodorkovsky, rich Russian oligarch, has gained a large part of his first happiness through the complicated diversity of currency exchanges and creative accounting that may not be againstWell, but they would certainly be perceived as illegal and scandalous higher officials in the Soviet Union if they knew and understand.