Creative Accounting, Fraud and International Accounting Scandals

Business scandals are always with us from the South Sea Bubble to Enron and Parmalat. As accounting forms a central element of any business success or failure, the role of accounting is crucial in understanding business scandals. This book aims to explore the role of accounting, particularly creative accounting and fraud, in business scandals.

Auteur
Michael Jones, MA Oxon, is Professor of Financial Reporting at Bristol University. He has taught accounting for 33 years at all levels from GCSE to final-year degree course, and has published over 140 articles in professional and academic journals, covering a wide range of topics including financial accounting, the history of accounting and international accounting. He is joint editor of the British Accounting Review and serves on two more editorial boards. He is Director of the Financial Reporting and Business Communication Unit and he chairs the British Accounting Association Financial and Reporting Special Interest Group. He has served on the British Accounting Association Committee and on the Committee for Professors of Accounting and Finance. He is also the author of three textbooks: Accounting, Financial Accounting and Management Accounting.

Texte du rabat
From the South Sea Bubble to Enron and Parmalat, business scandals have a long and varied history which continues into the present day. As accounting is central to the success or failure of any business, so creative accounting has always played a key role in these scandals, reflecting the extremes of how numbers can be manipulated to deceive or even defraud. Creative Accounting, Fraud and International Accounting Scandals explores the role of accounting, particularly creative accounting and fraud in business scandals from around the world. It features a collection of 13 chapters by international authors, which detail accounting fraud and scandals in both developed and developing economies including Australia, China, Germany, Greece, India, Italy, Japan, the Netherlands, Spain, Sweden the UK and US. To enhance the international perspective even further, a series of case studies, contributed by accounting experts, is also included. This unique, global perspective on accounting scandals provides the background for discussion on the role of powerful individuals, the motives and methods of management who are complicit in these scandals and the failures of internal control and external auditing, as well as the long term impact of business scandals on the regulatory environment. One of the few books on this subject, its accessible treatment of this relevant topic is fascinating reading for a wide audience. It also provides a highly useful reference for professional accountants and business people worldwide and students taking courses in forensic accounting and fraud, as well as providing more general background for most accounting courses.

Contenu

List of Contributors xvii

Preface xxiii

Acknowledgements xxv

Part A 1

1 Introduction - Setting the Scene 3
*Michael Jones*

1.1 Introduction 3

1.2 Exploring the Terms 4

1.2.1 Creative Accounting 4

1.2.2 Fraud 7

1.2.3 Other Terms 9

1.3 Structure of the Book 11

1.3.1 Increase Income 12

1.3.2 Decrease Expenses 12

1.3.3 Increase Assets 12

1.3.4 Decrease Liabilities 12

1.4 Conclusion 18

2 The Creative Accounting and Fraud Environment 21
*Michael Jones*

2.1 Introduction 21

2.2 The Main Actors 22

2.2.1 Managers 22

2.2.2 Investment Analysts 24

2.2.3 Regulators 24

2.2.4 Auditors 25

2.2.5 Shareholders 26

2.2.6 Merchant Banks 26

2.2.7 Other Users 27

2.2.8 Legal Authorities 27

2.3 Effective Corporate Governance 28

2.3.1 Effective Internal Controls 28

2.3.2 Division of the Responsibility between Chief Executive and Chairman 28

2.3.3 Audit Committee 28

2.3.4 Independent Board of Directors 28

2.4 Economic Environment 28

2.5 Conclusion 29

3 Motivations to Indulge in Creative Accounting and Fraud 31
*Michael Jones*

3.1 Introduction 31

3.1.1 Personal Incentives 33

3.1.2 Market Expectations 34

3.1.3 Special Circumstances 36

3.1.4 Cover-up Fraud 39

3.2 Conclusion 39

4 Methods of Creative Accounting and Fraud 43
*Michael Jones*

4.1 Introduction 43

4.2 Basic Principles 44

4.3 Nature of Accounting 45

4.4 Methods of Creative Accounting 45

4.4.1 Strategy 1: Increase Income 46

4.4.2 Strategy 2: Decrease Expenses 48

4.4.3 Strategy 3: Increase Assets 56

4.4.4 Strategy 4: Decrease Liabilities 58

4.4.5 Strategy 5: Increase Operating Cash Flow 60

4.5 Simple Numerical Example 61

4.6 Fraud 62

4.6.1 Misappropriation of Assets 64

4.6.2 Fictitious Transactions 65

4.7 Conclusion 67

5 Evidence for Creative Accounting and Fraud 69
*Michael Jones*

5.1 Introduction 69

5.2 The Descriptive Studies 69

5.2.1 Ian Grif ths, Creative Accounting (1986) 71

5.2.2 County Natwest WoodMac, Company Pathology (1991) 72

5.2.3 UBS Phillips & Drew, Accounting for Growth (1991) 73

5.2.4 Trevor Pijper, Creative Accounting (1993) 76

5.2.5 Frank Clarke, Graeme Dean and Kyle Oliver, Corporate Collapse: Accounting, Regulatory and Ethical Failure (2003, rst issued 1997) 77

5.2.6 Frank Clarke and Graeme Dean, Indecent Disclosure: Gilding the Corporate Lily (2007) 78

5.2.7 McBarnet and Whelan, Creative Accounting and the Cross-eyed Javelin Thrower (1999) 78

5.2.8 Charles Mulford and Eugene Comiskey, The Financial Numbers Game (2002) 79

5.2.9 Beasley, Carcello and Hermanson, Fraudulent Financial Reporting 1987-1997: An Analysis of U.S. Public Companies (1999) 81

5.2.10 Joseph Wells, Principles of Fraud Examination (2005) 82

5.3 The Statistical Studies 84

5.3.1 Earnings Management Studies 84

5.4 Conclusion 93

6 Impression Management 97
*Michael Jones*

6.1 Introduction 97

6.1.1 Accounting Narratives 97

6.1.2 Graphs 102

6.2 Conclusion 111

7 Taking the Long View: Accounting Scandals over Time 115
*Michael Jones*

7.1 Introduction 115

7.1.1 Ancient and Medieval 117

7.1.2 Seventeenth and Eighteenth Centuries 118

7.1.3 Nineteenth Century 119

7.1.4 Twentieth Century: Before Second World War 122

7.1.5 Twentieth Century: 1945-1980s 127

7.2 Conclusion 132

Part B 135

8 Accounting Scandals in Australia since the Late 1980s 137
*Garry D. Carnegie and Brendan T. O'Connell*

8.1 Introduction 137

8.2 Overview of Accounting Scandals during and since the 1890s 138

8.3 Case Studies of Accounting Scandals since the Late 1980s 141

8.3.1 Adelaide Steamship 142

8.3.2 Bond Corporation 143

8.3.3 Harris Scarfe 145

8.3.4 One.Tel 146

8.4 HIH Insurance 147

8.4.1 Background 148

8.4.2 Why did HIH Collapse? 149

8.4.3 Accounting Issues 150

8.4.4 Legal Outcomes Arising from the HIH Collapse 152

8.5 Corporate Governance Reforms Following the Accounting Scandals of the Early 2000s 155

8.6 Conclusion 156

9 Corporate Accounting Scandals in China 163
*Catherine Huirong Chen, Yuanyuan Hu and Jason Zezhong Xiao*

9.1 Introduction 163

9.2 Summary of Corporate Scandals 164

9.2.1 Shenzhen Yuanye 164

9.2.2 Great Wall Fund Raising 166

9.2.3 Hongguang 167

9.2.4 Daqing Lianyi 168

9.2.5 Kangsai Group 169

9.2.6 Lantian Gufen 170

9.3 A Case in Depth - Zhengzhou Baiwen 172

9.3.1 Background 172

9.3.2 Themes of the Scandal 174

9.3.3 Who is to Blame? 176

9.3.4 Consequences of the Baiwen Scandal 178

9.3.5 Aftermath 179

9.4 Conclusion 180

10 Accounting Scandals in Germany 185
*Hansrudi Lenz*

10.1 Introduction 185

10.2 Accounting Scandals Between 1985 and 2006 186

10.2.1 Co op AG (1988) 186

10.2.2 Balsam AG (1994) 187

10.2.3 Bremer Vulkan Verbund AG (1995) 189

10.2.4 Philipp Holzmann AG (1999) 191

10.3 Most Important Cases…