Essay About Right Action And Frauddefinition Of Accounting Fraudlawrence

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Chapter 1 FraudDefinition of Accounting FraudLawrence and Wells “Under common law, three elements are required go prove a fraud: a material false statement made with an intent to deceive… a victim’s reliance on the statement and damages.”FBI “The intentional perversion（曲解） of the truth for the purpose of inducing another person or other entity in reliance upon it to part with something of value or to surrender a legal right.” Center of Audit Quality “a material misrepresentation resulting from an intentional failure to report financial information in accordance with GAAP.”For civil cases the burden is a “preponderance of evidence.” In criminal fraud the standard is “beyond a reasonable doubt.”Criminal Accounting FraudMost of criminal corporate fraud investigated by the Financial Crimes Section (FCS) of the FBI involves financial reporting fraud. Gatekeepers who failed (Worldcom as an example)Board of DirectorsLack of independence Too few external directorsCompromised relationships with outside directors General oversight failure Audit CommitteeCompensation and stock-option committeeInternal Audit DepartmentsToo few resourcesReporting to the same managers they have to audit Sometimes ex-employees of external audit firmsExternal AuditorsAppearance versus fact of independenceAuditors joining clients firmsOwnership of shares in client companiesInvestment BankersCorrelation between receiving business and allocating “Friends of the Company” sharesDue diligence尽职尽责Instructing analysts to “give” favorable ratings of stock Management, Accounting Staff, and Internal ControlAAER’s show how frequently management misstated financial statements to meet analysts’ earnings expectationsIncrease in percentage of compensation composed of stock optionValue of options not expenses on the income statementInadequate internal control systemUnclear auditing obligations regarding internal control The Sarbanes-Oxley Act of 2002Some of the main areas of corporate governance reform as a result of the SOX Act of 2002 include:Internal control requirements (SOX Sect 404)Responsibilities of corporate management (Sox Sect 302)Loans to executivesIndependence and oversight of external auditorsAudit committeesIndependence of boards of directorsIndependence of analystsCorporate crime enforcementThe Dodd-Frank Act of 2010The SEC rules in response to Dodd-Frank: Rules concerning shareholder approval of executive compensationRules that have already resulted in approx.. 1200 hedge fund and other private fund advisors registering with the SECA whistle blower program Increasing dramatically investors’ visibility into the asset underlying all types of asset backed securitiesRequiring securitizers, to keep skin in the game, giving them an incentive to double-check originators’ underwriting practicesChanging the practices of the rating agencies whose gross mis-ratings of billions of dollars of mortgage-backed securities were kerosene on kindling Improper Revenue RecognitionImproper timing of Revenue RecognitionHolding books open after close of a reporting periodBill-and-Hold, Consignment Sales, and other Contingency SalesMultiple Element Contracts or Bundle Contracts            b. Fictitious RevenueImproper Expense RecognitionImproper Capitalization/deferral—Failure to record expenses or losses:Improper Capitalization of Expenses or LossesImproper Deferral of Expenses or LossesFailure to Record Expenses or LossesOverstating Ending Inventory ValuesImproper Use of Restructuring and Other Liability ReservesUnderstating Reserves for Bad Debts and Loan LossesFailure to Record Asset ImpairmentsImproper Accounting in Connection with Business Combination Improper Asset ValuationImproper Use of Merge ReservesInappropriate Application of Purchase/Pooling MethodsOther Areas of Improper AccountingInadequate Disclosures in Management Discussion & Analysis (“MD&A”) & elsewhere in Issuer Filings Failure to Disclose Related Party TransactionsInappropriate Accounting for Non-monetary and Roundtrip TransactionsImproper Accounting for Foreign Payments in Violation of the FCPAImproper Use of Non-GAAP Financial MeasuresImproper use of Off-Balance Sheet ArrangementsEthicsTheories of EthicsWe can distinguish three major ethical theories or schools of thought as to what is most important in the pursuit of morality—namely, consequentialism归结主义, deontological道义论, and virtue morality.  To the consequentialist, the most important issue in morality is to choose the right action and this choice is determined by examining the consequence of that actionTo the deontologist, the most important issue in morality is to do the right thing because it is right or, as it is often stated, “do your duty for duty’s sake”Under this view, if it is right to be honest, then avoiding lying and telling the absolute truth is always right, irrespective of the consequenceThe virtue ethicists hold that the most important aspect of morality is having the right character or set of traits or “dispositions” as they are often calledAccording to virtue ethicist, possessing the right set of virtues is central to morality, because what makes an action right is that it is the action that a virtuous person would takeConsequentialismThe term consequentialism refers to all the approaches to the study of morality that judge conduct or actions in terms of the consequences that they produceThe leading and best-known form of consequentialism is identified as utilitarianism (Jeremy Bentham) Utilitarianism holds that the right action ethically is the action that maximize the “good”Bentham thought that there was only one “good”, namely pleasure, and one “evil”, namely painBentham’s protégé门徒, John Stuart Mill, defined happiness as the presence of pleasure and the absence of pain, and believed that actions have utility when they maximize happiness According to Mill, actions are right in proportion to the happiness they tend to promote, and the morally best actions of those open to us is the action that maximizes happiness, or (in his sense) has utilityAs consequentialist philosophy has developed over years, different philosophers, have specified different definitions of the “good” or what ought to be maximized, but the unifying thread is that they all judge actions according to the sum of the net “good” that they cause among all affected by the actionsOther forms of consequentialism focus on the proportion of benefits to costs caused by actions, some testing actions by their benefits to the nation (nationalism), or their effects on a utility such as knowledge (epistemism 认知), or benefits for oneself only (egoism)DeontologyThe deontologist does not look to the future or the effect of actions in order to judge an action as right or wrongMoral actions is chosen not because of its consequences, but because it is the right thing to doDeontologists assert that one must do the right thing because it is one’s duty to do the right thingThe leading deontologist is Immanuel KantKant goes even further by saying that if you perceive telling the truth as a duty, you must always tell the truth for that reason in itselfFurthermore, you must tell the truth even if telling the truth could cause a negative consequenceKant’s standard test is that one ought to act as though a personal maxim were a universal moral law and you can stipulate that law for everyone without it leading to “contradiction”Finnis presents Kant’s three formulations of the categorical imperative:Act only according to that maxim by which you can at the same time will it should become a universal lawAct so that you treat humanity, whether in your own person or in that of another, always as an end and never as a meansAct according to a maxim which harmonizes with a possible realm of endsEthics (Continued)The three major ethical theories can be distinguished by their answer to the question, “What is the most important aspect of morality?”Both utilitarian and deontologists look outside of the individual, i.e. outside of the decision-maker, to determine the answer to the questionThe utilitarian or consequentialist focus on the consequences of the action to establish the morality of the action The deontologist insists that morality is determined by doing one’s duty at all the time, and an examination of the outer world ascertains what that duty isIn the virtue theory of ethical behavior, the most important aspect of morality is found within the individualAccording to this philosophy of virtue ethics, having the right character is the most important aspect of moralityVirtue EthicsHere the most important issue in morality is having the right “set of dispositions” or virtuesIn other words, having a moral character is the basis for choosing the right actions—a person of fundamental integrity can be trusted to do the right thingCohen (2004) describes this as follow:  A virtue ethics view may see the process more “insight out.” Moral behaviors should be the result of, and flow from, a person’s character. This is not only say that moral behavior is only automatic or spontaneous. It can indeed involve difficult and perplexing thinking and deliberation. Cultivation of an ethical person, then, is very largely a matter of developing the right character.