Everyone knows at least a little about the Enron story and the devastation it created in the lives of is employees. It's a story that belongs in any discussion of ethical accounting processes and what happens when accounting standards and ethics are discarded for personal greed.
Enron began in 1985 selling natural gas to gas companies and businesses. In 1996, energy markets were changed so that the price of energy could now be decided by competition among energy companies instead of being fixed by government regulations. With this change, Enron began to function more as a middleman than a traditional energy supplier, trading in energy contracts instead of buying and selling natural gas. Enron's rapid growth created excitement among investors and drove the stock price up. As Enron grew, it expanded into other industries such as Internet services, and its financial contracts became more complicated.
In order to keep growing at this rate, Enron began to borrow money to invest in new projects. However, because this debt would make their earnings look less impressive, Enron began to create partnerships that would allow it to keep debt off of its books. One partnership created by Enron, Chewco Investments (named after the Star Wars character Chewbacca) allowed Enron to keep $600 million in debt off of the books it showed to the government and to people who own Enron stock. When this debt did not show up in Enron's reports, it made Enron seem much more successful than it actually was. In December 2000, Enron claimed to have tripled its profits in two years.
In August 2001, Enron vice president Sherron Watkins sent an anonymous letter to the CEO of Enron, Kenneth Lay, describing accounting methods that she felt could lead Enron to "implode in a wave of accounting scandals." Also in August, CEO Kenneth Lay sent e-mails to his employees saying that he expected Enron stock prices to go up. Meanwhile, he sold off his own stock in Enron.
On October 22nd, the Securities and Exchange Commission (SEC) announced that Enron was under investigation. On November 8th, Enron said that it has overstated earnings for the past four years by $586 million and that it owed over $6 billion in debt by next year.
With these announcements, Enron's stock price took a dive. This drop triggered certain agreements with investors that made it necessary for Enron to repay their money immediately. When Enron could not come up with the cash to repay its creditors, it declared for Chapter 11 bankruptcy.
Saturday, February 27, 2010
What is the Sarbanes-Oxley Act?
The Sarbanes-Oxley Act of 2002 is a United States federal law passed in response to the recent major corporate and accounting scandals including those at Enron, Tyco International, and WorldCom (now MCI). These scandals resulted in a decline of public trust in accounting and reporting practices. Named after sponsors Senator Paul Sarbanes (D-Md.) and Representative Michael G. Oxley (R-Oh.), the Act was approved by the House by a vote of 423-3 and by the Senate 99-0. The legislation is wide-ranging and establishes new or enhanced standards for all U.S. public company Boards, Management, and public accounting firms. The first and most important part of the Act establishes a new quasi-public agency, the Public Company Accounting Oversight Board, which is charged with overseeing and disciplining accounting firms in their roles as auditors of public companies. Some of the major provisions of the Sarbanes-Oxley Act's include:
--Certification of financial reports by chief executive officers and chief financial officers
--Auditor independence, including outright bans on certain types of work for audit clients and pre-certification by the company's Audit Committee of all other non-audit work
--A requirement that companies listed on stock exchanges have fully independent audit committees that oversee the relationship between the company and its auditor
--Significantly longer maximum jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements, although maximum sentences are largely irrelevant because judges generally follow the Federal Sentencing Guidelines in setting actual sentences
--Employee protections allowing those corporate fraud whistleblowers who file complaints with OSHA within 90 days, to win reinstatement, back pay and benefits, compensatory damages, abatement orders, and reasonable attorney fees and costs.
--Certification of financial reports by chief executive officers and chief financial officers
--Auditor independence, including outright bans on certain types of work for audit clients and pre-certification by the company's Audit Committee of all other non-audit work
--A requirement that companies listed on stock exchanges have fully independent audit committees that oversee the relationship between the company and its auditor
--Significantly longer maximum jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements, although maximum sentences are largely irrelevant because judges generally follow the Federal Sentencing Guidelines in setting actual sentences
--Employee protections allowing those corporate fraud whistleblowers who file complaints with OSHA within 90 days, to win reinstatement, back pay and benefits, compensatory damages, abatement orders, and reasonable attorney fees and costs.
Wednesday, February 24, 2010
Who uses forensic accountants?
Forensic accounting financial investigative specialists work with financial information for the purpose of conveying complicated issues in a manner that others can easily understand. While some forensic accountants and forensic accounting specialists are engaged in the public practice of forensic examination, others work in private industry for such entities as banks and insurance companies or governmental entities such as sheriff and police departments, the Federal Bureau of Investigation (FBI), and the Internal Revenue Service (IRS).
The occupational fraud committed by employees usually involves the theft of assets. Embezzlement has been the most often committed fraud for the last 30 years. Employees may be involved in kickback schemes, identity theft, or conversion of corporate assets for personal use. The forensic accountant couples observation of the suspected employees with physical examination of assets, invigilation, inspection of documents, and interviews of those involved. Experience on these types of engagements enables the forensic accountant to offer suggestions as to internal controls that owners could implement to reduce the likelihood of fraud.
At times, the forensic accountant may be hired by attorneys to investigate the financial trail of persons suspected of engaging in criminal activity. Information provided by the forensic accountant may be the most effective way of obtaining convictions. The forensic accountant may also be engaged by bankruptcy court when submitted financial information is suspect or if employees (including managers) are suspected of taking assets.
Opportunities for qualified forensic accounting professionals abound in private companies. CEOs must now certify that their financial statements are faithful representations of the financial position and results of operations of their companies and rely more heavily on internal controls to detect any misstatement that would otherwise be contained in these financials.
In addition to these activities, forensic accountants may be asked to determine the amount of the loss sustained by victims, testify in court as an expert witness and assist in the preparation of visual aids and written summaries for use in court.
The occupational fraud committed by employees usually involves the theft of assets. Embezzlement has been the most often committed fraud for the last 30 years. Employees may be involved in kickback schemes, identity theft, or conversion of corporate assets for personal use. The forensic accountant couples observation of the suspected employees with physical examination of assets, invigilation, inspection of documents, and interviews of those involved. Experience on these types of engagements enables the forensic accountant to offer suggestions as to internal controls that owners could implement to reduce the likelihood of fraud.
At times, the forensic accountant may be hired by attorneys to investigate the financial trail of persons suspected of engaging in criminal activity. Information provided by the forensic accountant may be the most effective way of obtaining convictions. The forensic accountant may also be engaged by bankruptcy court when submitted financial information is suspect or if employees (including managers) are suspected of taking assets.
Opportunities for qualified forensic accounting professionals abound in private companies. CEOs must now certify that their financial statements are faithful representations of the financial position and results of operations of their companies and rely more heavily on internal controls to detect any misstatement that would otherwise be contained in these financials.
In addition to these activities, forensic accountants may be asked to determine the amount of the loss sustained by victims, testify in court as an expert witness and assist in the preparation of visual aids and written summaries for use in court.
Monday, February 22, 2010
How To Secure Your Wireless Network
People have more flexible time due to wireless network. Thanks to the invention of wireless. People can now work from home while taking care of their kids or doing house works. No more stress from traffic jam anymore. Is this great?
Well, there is something you should realize. Working from home while using a wireless local area network (WLAN) may lead to theft of sensitive information and hacker or virus infiltration unless proper measures are taken. As WLANs send information over radio waves, someone with a receiver in your area could be picking up the transmission, thus gaining access to your computer. They could load viruses on to your laptop which could be transferred to the company's network when you go back to work.
Believe it or not! Up to 75 per cent of WLAN users do not have standard security features installed, while 20 per cent are left completely open as default configurations are not secured, but made for the users to have their network up and running ASAP. It is recommended that wireless router/access point setup be always done though a wired client.
You can setup your security by follow these steps:
1. Change default administrative password on wireless router/access point to a secured password.
2. Enable at least 128-bit WEP encryption on both card and access point. Change your WEP keys periodically. If equipment does not support at least 128-bit WEP encryption, consider replacing it. Although there are security issues with WEP, it represents minimum level of security, and it should be enabled.
3. Change the default SSID on your router/access point to a hard to guess name. Setup your computer device to connect to this SSID by default.
4. Setup router/access point not to broadcast the SSID. The same SSID needs to be setup on the client side manually. This feature may not be available on all equipment.
5. Block anonymous Internet requests or pings. On each computer having wireless network card, network connection properties should be configured to allow connection to Access Point Networks Only. Computer to Computer (peer to peer) Connection should not be allowed.
Enable MAC filtering. Deny association to wireless network for unspecified MAC addresses. Mac or Physical addresses are available through your computer device network connection setup and they are physically written on network cards. When adding new wireless cards / computer to the network, their MAC addresses should be registered with the router /access point. Network router should have firewall features enabled and demilitarized zone (DMZ) feature disabled.
All computers should have a properly configured personal firewall in addition to a hardware firewall. You should also update router/access point firmware when new versions become available. Locating router/access point away from strangers is also helpful so they cannot reset the router/access point to default settings. You can even try to locate router/access point in the middle of the building rather than near windows to limit signal coverage outside the building.
There is no guarantee of a full protection of your wireless network, but following these suggested tips can definitely lessen your risk of exposing to attackers aiming at insecure networks.
Well, there is something you should realize. Working from home while using a wireless local area network (WLAN) may lead to theft of sensitive information and hacker or virus infiltration unless proper measures are taken. As WLANs send information over radio waves, someone with a receiver in your area could be picking up the transmission, thus gaining access to your computer. They could load viruses on to your laptop which could be transferred to the company's network when you go back to work.
Believe it or not! Up to 75 per cent of WLAN users do not have standard security features installed, while 20 per cent are left completely open as default configurations are not secured, but made for the users to have their network up and running ASAP. It is recommended that wireless router/access point setup be always done though a wired client.
You can setup your security by follow these steps:
1. Change default administrative password on wireless router/access point to a secured password.
2. Enable at least 128-bit WEP encryption on both card and access point. Change your WEP keys periodically. If equipment does not support at least 128-bit WEP encryption, consider replacing it. Although there are security issues with WEP, it represents minimum level of security, and it should be enabled.
3. Change the default SSID on your router/access point to a hard to guess name. Setup your computer device to connect to this SSID by default.
4. Setup router/access point not to broadcast the SSID. The same SSID needs to be setup on the client side manually. This feature may not be available on all equipment.
5. Block anonymous Internet requests or pings. On each computer having wireless network card, network connection properties should be configured to allow connection to Access Point Networks Only. Computer to Computer (peer to peer) Connection should not be allowed.
Enable MAC filtering. Deny association to wireless network for unspecified MAC addresses. Mac or Physical addresses are available through your computer device network connection setup and they are physically written on network cards. When adding new wireless cards / computer to the network, their MAC addresses should be registered with the router /access point. Network router should have firewall features enabled and demilitarized zone (DMZ) feature disabled.
All computers should have a properly configured personal firewall in addition to a hardware firewall. You should also update router/access point firmware when new versions become available. Locating router/access point away from strangers is also helpful so they cannot reset the router/access point to default settings. You can even try to locate router/access point in the middle of the building rather than near windows to limit signal coverage outside the building.
There is no guarantee of a full protection of your wireless network, but following these suggested tips can definitely lessen your risk of exposing to attackers aiming at insecure networks.
Saturday, February 20, 2010
What is forensic accounting?
Forensic accounting is the practice of utilizing accounting, auditing, and investigative skills to assist in legal matters. It encompasses 2 main areas - litigation support, investigation, and dispute resolution. Litigation support represents the factual presentation of economic issues related to existing or pending litigation. In this capacity, the forensic accounting professional quantifies damages sustained by parties involved in legal disputes and can assist in resolving disputes, even before they reach the courtroom. If a dispute reaches the courtroom, the forensic accountant may testify as an expert witness.
Investigation is the act of determining whether criminal matters such as employee theft, securities fraud (including falsification of financial statements), identity theft, and insurance fraud have occurred. As part of the forensic accountant's work, he or she may recommend actions that can be taken to minimize future risk of loss. Investigation may also occur in civil matters. For example, the forensic accountant may search for hidden assets in divorce cases.
Forensic accounting involves looking beyond the numbers and grasping the substance of situations. It's more than accounting...more than detective work...it's a combination that will be in demand for as long as human nature exists. Who wouldn't want a career that offers such stability, excitement, and financial rewards?
In short, forensic accounting requires the most important quality a person can possess: the ability to think. Far from being an ability that is specific to success in any particular field, developing the ability to think enhances a person's chances of success in life, thus increasing a person's worth in today's society. Why not consider becoming a forensic accountant on the Forensic Accounting Masters Degree link on the left-hand navigation bar.
Investigation is the act of determining whether criminal matters such as employee theft, securities fraud (including falsification of financial statements), identity theft, and insurance fraud have occurred. As part of the forensic accountant's work, he or she may recommend actions that can be taken to minimize future risk of loss. Investigation may also occur in civil matters. For example, the forensic accountant may search for hidden assets in divorce cases.
Forensic accounting involves looking beyond the numbers and grasping the substance of situations. It's more than accounting...more than detective work...it's a combination that will be in demand for as long as human nature exists. Who wouldn't want a career that offers such stability, excitement, and financial rewards?
In short, forensic accounting requires the most important quality a person can possess: the ability to think. Far from being an ability that is specific to success in any particular field, developing the ability to think enhances a person's chances of success in life, thus increasing a person's worth in today's society. Why not consider becoming a forensic accountant on the Forensic Accounting Masters Degree link on the left-hand navigation bar.
Friday, February 19, 2010
What are auditors?
Accountants and auditors help to ensure that the Nation's firms are run efficiently, its public records kept accurately, and its taxes paid properly and on time. They perform these vital functions by offering an increasingly wide array of business and accounting services, including public, management, and government accounting, as well as internal auditing, to their clients. Beyond carrying out the fundamental tasks of the occupation-preparing, analyzing, and verifying financial documents in order to provide information to clients-many accountants now are required to possess a wide range of knowledge and skills. Accountants and auditors are broadening the services they offer to include budget analysis, financial and investment planning, information technology consulting, and limited legal services.
Specific job duties vary widely among the four major fields of accounting: public, management, and government accounting and internal auditing.
Internal auditors verify the accuracy of their organization's internal records and check for mismanagement, waste, or fraud. Internal auditing is an increasingly important area of accounting and auditing. Internal auditors examine and evaluate their firms' financial and information systems, management procedures, and internal controls to ensure that records are accurate and controls are adequate to protect against fraud and waste. They also review company operations, evaluating their efficiency, effectiveness, and compliance with corporate policies and procedures, laws, and government regulations. There are many types of highly specialized auditors, such as electronic data-processing, environmental, engineering, legal, insurance premium, bank, and health care auditors. As computer systems make information timelier, internal auditors help managers to base their decisions on actual data, rather than personal observation. Internal auditors also may recommend controls for their organization's computer system, to ensure the reliability of the system and the integrity of the data.
Government accountants and auditors work in the public sector, maintaining and examining the records of government agencies and auditing private businesses and individuals whose activities are subject to government regulations or taxation. Accountants employed by Federal, State, and local governments guarantee that revenues are received and expenditures are made in accordance with laws and regulations. Those employed by the Federal Government may work as Internal Revenue Service agents or in financial management, financial institution examination, or budget analysis and administration.
Specific job duties vary widely among the four major fields of accounting: public, management, and government accounting and internal auditing.
Internal auditors verify the accuracy of their organization's internal records and check for mismanagement, waste, or fraud. Internal auditing is an increasingly important area of accounting and auditing. Internal auditors examine and evaluate their firms' financial and information systems, management procedures, and internal controls to ensure that records are accurate and controls are adequate to protect against fraud and waste. They also review company operations, evaluating their efficiency, effectiveness, and compliance with corporate policies and procedures, laws, and government regulations. There are many types of highly specialized auditors, such as electronic data-processing, environmental, engineering, legal, insurance premium, bank, and health care auditors. As computer systems make information timelier, internal auditors help managers to base their decisions on actual data, rather than personal observation. Internal auditors also may recommend controls for their organization's computer system, to ensure the reliability of the system and the integrity of the data.
Government accountants and auditors work in the public sector, maintaining and examining the records of government agencies and auditing private businesses and individuals whose activities are subject to government regulations or taxation. Accountants employed by Federal, State, and local governments guarantee that revenues are received and expenditures are made in accordance with laws and regulations. Those employed by the Federal Government may work as Internal Revenue Service agents or in financial management, financial institution examination, or budget analysis and administration.
What is the FASB?
The FASB is one organization that provides standardized guidelines for financial reporting. The mission of the Financial Accounting Standards Board (FASB) is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors and users of financial information.
Accounting standards are essential to the efficient functioning of the economy because decisions about the allocation of resources rely heavily on credible, concise, transparent and understandable financial information. Financial information about the operations and financial position of individual entities also is used by the public in making various other kinds of decisions.
To accomplish its mission, the FASB acts to:
--Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability and on the qualities of comparability and consistency;
--Keep standards current to reflect changes in methods of doing business and changes in the economic environment;
--Consider promptly any significant areas of deficiency in financial reporting that might be improved through the standard-setting process;
--Promote the international convergence of accounting standards concurrent with improving the quality of financial reporting; and
--Improve the common understanding of the nature and purposes of information contained in financial reports.
The FASB develops broad accounting concepts as well as standards for financial reporting. It also provides guidance on implementation of standards. Concepts are useful in guiding the Board in establishing standards and in providing a frame of reference, or conceptual framework, for resolving accounting issues. The framework will help to establish reasonable bounds for judgment in preparing financial information and to increase understanding of, and confidence in, financial information on the part of users of financial reports. It also will help the public to understand the nature and limitations of information supplied by financial reporting.
Accounting standards are essential to the efficient functioning of the economy because decisions about the allocation of resources rely heavily on credible, concise, transparent and understandable financial information. Financial information about the operations and financial position of individual entities also is used by the public in making various other kinds of decisions.
To accomplish its mission, the FASB acts to:
--Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability and on the qualities of comparability and consistency;
--Keep standards current to reflect changes in methods of doing business and changes in the economic environment;
--Consider promptly any significant areas of deficiency in financial reporting that might be improved through the standard-setting process;
--Promote the international convergence of accounting standards concurrent with improving the quality of financial reporting; and
--Improve the common understanding of the nature and purposes of information contained in financial reports.
The FASB develops broad accounting concepts as well as standards for financial reporting. It also provides guidance on implementation of standards. Concepts are useful in guiding the Board in establishing standards and in providing a frame of reference, or conceptual framework, for resolving accounting issues. The framework will help to establish reasonable bounds for judgment in preparing financial information and to increase understanding of, and confidence in, financial information on the part of users of financial reports. It also will help the public to understand the nature and limitations of information supplied by financial reporting.
Subscribe to:
Posts (Atom)
