ACCT525-Week 1 Assignment-Current Issues in Accounting

Steven KelleyACCT525Current Issues in AccountingWeek 1 AssignmentThe Case of Phar-Mor Inc.11/2/14 The Case of Phar-Mor Inc Read “The Case of Phar-Mor Inc.” which can be accessed through the DeVry onlinelibrary. In 3-4 pages (12-pt type, double-spaced) summarize the case and answer thefollowing questions: Phar-Mor was a case of wrong getting even worse, if that is possible. They were beingbilled / charged for inventory they weren’t receiving, there were investments into thingswould turn out to be poor choices. Embezzling money was also something that washappening, as the money was being used for personal use. Fake accounts were set up,false reporting of inventory began happening, and in the end, it cost people hundreds ofmillions of dollars. 1. Could SOX have prevented the Phar-Mor fraud? How? Which specific sectionsof SOX?I believe that if SOX was or had been in effect at the time of the Phar-Morscandal, it might have been prevented. There are many different avenues onecould look at when considering how SOX would have helped in this case, but onethat sticks out to me is the auditing system. According to SOX, the auditor wouldhave been rotated, as to not allow one person to become comfortable in thatposition and possibly aid fraudulent activities. Had there been a rotation withPhar-Mor, the fraud might have been uncovered sooner, or might not have evenhappened at all. (Title II, section 203, covers audit partner rotation) I too believe in the section that deals with conflicts of interest (Title II, section206). This would have been another preventative measure that would haveprevented Phar-Mor from rehiring employees that had been terminated in thepast due to part of the scandal.I think one could look at the Phar-Mor scandal and flip a coin in all reality todetermine whether or not SOX would have, or could have prevented this scandalfrom happening. There is a decent possibility, but one will never know. 2. Research the Waste Management scandal from the late 1990’s. Describe thescandal. Could SOX have prevented this scandal?Waste Management is yet another scandal that does come to mind when thinkingabout accounting fraud. Waste Management was able to inflate profits and hidexpenses as several employees were walking away with tens of millions ofdollars in their pockets. Expenses were misstated as a way to report a higherbook value, and when the expenses were recorded, most of the time they werereported incorrectly.One could assume that if SOX were in place at the time of this scandal, it mighthave been avoidable…but then again, when those who are in power decide tostart making decisions, who is going to blow the hypothetical whistle? Whenpowerful people start committing fraud, many of the ones around them decide totake part and begin the cover-up. Flip the coin over and it is possible that if SOXwas in place, someone might have had a conscious, decided to not take part andexpose the whole thing. 3. Research the Enron scandal from the early 2000’s. Describe the scandal. CouldSOX have prevented this scandal?Enron will probably be one of the ones I will remember for a long time. Therewere many different people / entities involved with this one, that it was strictlykept in-house so to speak. This one is an example of just how far some peoplewill go in order to make a few dollars (with several zeros at the end). There werebanks involved, the company itself was involved, and many of the employeeswere involved too. I believe in this case, all of the numbers were beingmanipulated in one fashion or another. Number were inflated to show higherprofits, expenses were left off to record a higher profit margin, and debt fromprojects were being left off the accounting statements. These poor financialpractices were allowing Enron to ultimately hide billions of dollars.Again, in my opinion, it is difficult to tell whether or not SOX would have beenable to prevent this scandal from happening. Given that there are certainstandards and guidelines that mist be adhered to with SOX, I am a firm believerthat SOX can and probably does deter a lot of fraud from being committed. As mentioned several times above, and going through a lot of training myself inregards to proper accounting procedures, I believe that even with something likeSOX, there is always the temptation for someone to see if they can get away withit. Fraud might not be 100% preventable, but I do believe it can be deterred ifapproached correctly and SOX is one way of trying to reduce the amount ofcorporate fraud in America.

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