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primary accounting

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.

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.


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 22nd 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 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.

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.


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. Retrieved 8 May 2015 from

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