Accounting assign PDF

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accounting assignmnet...

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Name: Tarteel

Jameel

Registration number: bba192035 Course: principles of accounting Assignment #1

Q1. What is window dressing and why is it unethical?

H IG H

Ans: window dressing means manipulation or alteration of the data of a company. it is a fraud done by a company to gain investors. It is done by showing assets of the company in positive or much higher position than its usual state and liabilities are shown much less than the original state in the balance sheet, which tells the overall financial position of the company.

Assets LO W

Liability

Window dressing is unethical due to the following reasons: 1. It is a fraud in which top management is involved. 2. It gives misleading information to the investors/shareholders. 3. It can cause massive loss to the investors, instead of making profit they will receive financial trouble. 4. It is against the laws of company. 5. There is no fair value available. 6. Company can mask its financial status in short term but cannot mask it in long term. 7. After truth is revealed the company becomes disrepute. 8. Trust is lost forever, no one will invest in the company in future.

Q2. Cite any example of an accounting fraud. What actions were taken by the authorities after that?

Ans: WorldCom was a telecommunication company they rented phone towers and charged customers for the service, there revenue and profit was high from 1994 to 1999.

revenue and profit

1994

1999

In the quarter of year 1999 the CFO and the controller of the organization had a meeting to discuss the financial results and the CFO was not happy with results so the controller went back to the team and asked them to check the data again but they were unable to find any fault. So, the CFO asked controller to book an imaginary entry, the controller thought that maybe in the next quarter they’ll able to know what is wrong with the data so he agreed with CFO and booked a BOGUS entry. They booked the same entry three times but it was not enough to increase the margin. The CFO then decided to capitalize the rent that they were paying for phone towers. They tried to turn expense into asset. While we all know asset is what makes future economic benefit. From the above data we can see that this organization made two big bad decisions a) Bogus entry (not genuine information) b) Mis clarification of data (expense) At that time one of the members of an audit team joined the company and she started suspecting the book records and uncovered the truth, she discovered that this organization violated 2 major principles of accounting 

Objectivity principle: according to this principle while recording any data you must have a supporting evidence, which was missing in the bogus entry case.

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Matching principle: this principle is based on the match between revenue and expense, the organization took all the expense and hid it under balance sheet as an asset. so, the mis clarification of the data violated this rule.

Actions taken by authorities    

After the scandal was reported, WorldCom company was filed for bankruptcy, new laws were introduced to secure investments in companies. Ordered organizations to change audit members every five years. increased criminal punishments for the extortion. Allowed only two board members to be certified for public accountant.

References: Investopedia...