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Wednesday 31 October 2012

Examples of Accounting scandals due to unethical behavior in accounting

Examples of Accounting scandals due to unethical behavior in accounting

Accounting scandals due to unethical behavior in accounting

There has been several scandals related to unethical behavior accounting; one of the scandals was Enron scandal in 2001 in the United States. In this scandal the auditing firm involved was Arthur Andersen in Texas which eventually led to bankruptcy of Enron in December 2001.

Several people were indicted and tried including Kenneth lee “ken” lay a former CEO of Enron who died in 2006. Others were Jeffrey Skilling and Andrew Fastow. They had embezzled the money and Lay moved away from being the CEO and sold his enormous part of his shares.Buy a book on ethical standards

Three years later another big firm AIG in the United States was involved in another scandal. AIG could be described as the world’s largest insurance and financial services company. AIG was accused of assisting Client Company in bolstering its balance sheet through a bogus insurance transaction.

Later, in 2005 AIG admitted to improper accounting disclosing that the re insurance deal with GenRe should have accounted for as a deposit. Through this misleading accounting and financial reporting which engaged two sham insurance transactions, displayed a false positive picture of AIG’s underwriting performance for the prospective public investors. They falsely gave the investors the impression that they had larger reserves than they actually had.

Later this year, Lehman Brothers Holdings in the United States was involved in yet another scandal due to failure to disclose Repo 105 transactions to investors. Repo 105 is an accounting maneuver where a short term loan is classified as a sale. Reports indicate that Repo 105 was used by investment bank Lehman brothers three times before being bankrupt. Lehman’s auditors Ernst&Young were aware of this questionable classification.

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