Litigation, Censures, and Fines
Research the Internet for recent litigation, censures, and fines involving national public
accounting firms. Examples of litigation cases against national public accounting firms include fines by
regulatory authorities and censures by professional societies.
Write a three to four (3-4) page paper in which you:
1.Analyze the primary accounting issues which form the crux of the litigation or fine for the firm, and
indicate the impact to the firm as a result of litigation or fine. Provide support for your rationale.
2.Examine the key inferences of corporate ethics related to internal controls and accounting principles
which lead to the litigation or fine for the accounting firm.
3.Evaluate the primary ethical standards of the accounting organization�s leadership and values which
contributed to approval of the accounting issues and thus created the litigation or fines in question.
4.Identify specific conduct violations committed by the organization and accounting firm in question. Next,
create an argument supporting the actions against the organization and accounting firm, based on the
current professional code of conduct for independent auditors and management accountants.
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5.Make a recommendation as to how regulators and professional societies may prevent this type of
behavior in question for the future. Provide support for your rationale.
6.Use two (3) quality academic resources in this assignment. Note: Wikipedia and other Websites do not
qualify as academic resources.
Your assignment must follow these formatting requirements:
�Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides;
citations and references must follow APA or school-specific format.
�Include a cover page containing the title of the assignment, the student�s name, the professor�s
name, the course title, and the date. The cover page and the reference page are not included in the
required assignment page length.
The specific course learning outcomes associated with this assignment are:
�Analyze business situations to determine the appropriateness of decision making in terms of
professional standards and ethics.
�Use technology and information resources to research issues in accounting.
�Write clearly and concisely about accounting using proper writing mechanics.
Introduction
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Giant US corporations have in the last decade collapse due to financial improprieties that are
directly related to their financial reporting. Lehman Brothers holdings Incorporation was already
insolvent many times before it ultimately filed for bankruptcy officially in early September 2008
and it was largely due to its faulty financial reporting that was limited to ineffective or
inadequate financial supervision or regulation that allowed it to remain afloat for much longer
before its eventual collapse and bankruptcy. Lehman brothers manipulated its financial
accounting reports and even paid dividends when the company was already facing financial
crisis (Blundell-Wignall and Atkinson, 2008).
On 22 nd October the year 2013, PCAOB (Public Company Accounting Oversight Board)
announced that Deloitte & Touche was to pay $2 million US dollars as fines for allowing a
suspended auditor to practice auditing in their firm. The penalty was as a result of a direct
violation of the provisions of the Sarbanes-Oxley Act and also against the polices of PCAOB to
allow a former partner who is under suspension to perform an audit as an associate PCAOB
(2013). The suspended officer must have been involved in malpractices that led to his
suspension.
Sarbanes-Oxley Act is a federal law that was particularly enacted to enhance and supplement the
powers of the United States boards or the management of public companies and the public
accounting companies or firms. The Sarbanes-Oxley Act was enacted as a reaction to major
scandals by accounting firms and the corporate world in the U.S. PCAOB was created and given
the overall responsibility of overseeing, supervising, disciplining, and regulating all accounting
firms in their usual operations and it can inspect or summon any auditing firm it suspects to be
operating against the interests of the public or the provisions of the act. The Sarbanes-Oxley Act
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covers corporate governance, transparency, financial disclosures, accountability and
effectiveness of internal control systems.
The officer, Christopher, E. Anderson was suspended due to his participation in a flawed audit
exercise of Navistar Financial Corporation (NFC) as an auditor of Deloitte and Touche in (2003
PCAOB, 2013, p.3).
Deloitte & Touche was primarily fined for allowing a suspended auditor to practice auditing
while under suspension and also failing to take adequate controls to ensure that an incident like
that never occurred in their organization (PCAOB, 2013, p.7)
The impact of the case to Deloitte and Touche was enormous and the firm had to reorganize all
its departments to comply with the provisions of the Sarbanes Oxley Act. The firm’s values and
standards are mostly questioned when incidents occur that make their overall commitment to
transparent and accountable conducts come into focus.
Deloitte & Touche allowed Navistar Financial Corporation (NFC) to continue operating with a
flawed auditing process. Most corporations face financial crisis without the shareholders being
notified on time. In most cases, the principal shareholders are also kept in the dark concerning
the company’s true financial position hence when they collapse it comes as a shock to the owners
of the company or in case of financial institutions, the depositors even lose their savings.
PCAOB should be encouraged to continue with its role as major accounting firms like Arthur
Andersen were involved in major accounting scandals that led to giant corporations to collapse
without the shareholders being informed on time while in some cases they also learn of their
companies bankruptcies over news alerts.
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To conclude, auditing and accounting firms have to be supervised as some have proved that they
can mislead the public. Corporation’s shares increase in value when they pay dividends hence
most companies strain to pay dividends when actually they should not and rogue accounting
firms assist them to manipulate their financial statements to reflect that they are profitable when
they are actually facing financial crisis. PCAOB has been mandated to reign in rogue accounting
firms that have in the past assisted conspired with some companies to present false financial
reports and statements to the public. The penalties for such offenses are currently very stiff and
they may also lead to criminal charges. Other provisions and agreements between countries have
been made to protect individual shareholders from over ambitious financial companies. The
Basell I, II and II came into existence to set some reasonable standards in financial companies to
maintain certain reserves that ensured that depositors were protected when such companies
collapse due to reckless decisions by the management of such firms (Blundell-Wignall and
Atkinson, 2010). The major aim of the Basell committee on financial institutions was to control
and restrict the Capital Adequacy ratios that were later known as the Basle Capital Accord. Basel
recommended the systems and approach of arriving at the Capital adequacy Ratios calculations
and also recommended the minimum ratios that were allowed. The provisions of the Sarbanes
Oxley Act and the policies of the PCAOB have been put in place to prevent occurrence of
irresponsible accounting practice and the control of fraud in organizations.
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References
Blundell-Wignall, A. and Atkinson, P.E., (2008), “The Subprime Crisis: Causal Distortions and
Regulatory Reform”, in Lessons From the Financial Turmoil of 2007 and 2008, Kent and
Bloxham (eds.), Reserve Bank of Australia.
Blundell-Wignall, A. and Atkinson, P.E., (2010), “Thinking beyond Basel III: Necessary
Solutions for Capital and Liquidity”, OECD Journal, Financial Market Trends, Vol. 2010,
issue No. 1.
PCAOB (Public Company Accounting Oversight Board) (2013) PCAOB Announces Settled
Disciplinary Order against Deloitte & Touche for Permitting Suspended Auditor to
Participate in Firm’s Public Company Audit Practice.
