The fraud triangle is made up by three distinguished elements. These elements in the fraud triangle consist of pressure, opportunity, and rationalization. The overall representation of the fraud triangle can be seen as the specific model to spot any type of high-risk unethical and fraudulent performances being conducted by a company, in this case Cendant Corporation. Cedant Corporations actions can be analyzed by the fraud triangle by the way that their senior management/top management decisions fell into the three categories of pressure, rationalization, and opportunity. Cendant Corporation had the pressure to comply with their shareholders and to maintain a stable financial status to prove that they were a profitable organization with a bright company image.
The financial scandals in early 2000s caused the Sarbanes-Oxley Act of 2002 to be created. Enron, WorldCom and the accounting firm, Arthur Andersen, to intentionally mislead their shareholders by exaggerating their profits and understating their expenses. The scandals had raised the importance of internal control for enhancing corporate governance. Therefore, the government established the SOX to protect the interest of the investors and employees and to monitor the companies and auditors.
By establishing corporate policy will help employees to clearly understand their roles and responsibilities within predefined limits. By creating corporate policy, employees will make decisions and take actions that support the corporation’s mission, objectives, goals and strategies. An advantage of corporate policy is that it provides legal protection to both the corporation and
What is corporate compliance? Compliance - The word compliance is defined as the act of adhering to or conforming to a law, rule, demand, or request. In a business environment, conforming to the laws, regulations, rules and policies is a very important part of business operations often referred to as "corporate compliance." Corporate compliance involves keeping a watchful eye on a fast-changing legal and regulatory climate, and making the changes necessary for the business to continue operating in good standing within its industry, community, and customer base. In a broader sense, corporate compliance extends beyond mere legal and regulatory conformity into the realm of promoting organizational ethics and corporate integrity.
Watts’ accounting regulation explanations and evidence have important implications for accounting regulators (Watts 2003). Asymmetry in litigation leads to asymmetry in regulator’s cost. In essence, what Watts is saying is that, conservatism cuts the political expenses on regulators and standard setters. Moreover, to decrease taxes and increase a firm’s value, there must be an asymmetry between gains and losses. If a firm under report profits they will pay less money, hence there is a direct link between profits and
2. Reliability: With moral principles clients are able to rely more on the Accountants. The nature of the work carried out by accountants and auditors requires a high level of ethics. Shareholders, potential shareholders, and other users of the financial statements rely heavily on the yearly financial statements of a company as they can use this information to make an informed decision about investment. They rely on the opinion of the accountants who prepared the statements, as well as the auditors that verified it, to present a true and fair view of the company.
This Act enhanced standards for corporate accountability, responsibility, and ﬁnancial reporting transparency. SOX greatly emphasizes an organization’s internal controls, requiring an internal control report in the annual report. The new requirements placed greater demands on internal control. The COSO internal control framework passed in 1994 outlines three objectives of internal control as: effectiveness and efficiency of operations; reliability of financial information; and compliance with applicable laws and regulations. Hence, the internal control function becomes the key to assess the effectiveness of utilizing financial resources by identifying waste, inefficiencies and fraud in budget items and make the organization
Management Accounting Practices of the easyJet plc Introduction The main objective of the paper to explain the accounting practices of easyJet plc. The paper will explain the summary of the company including its business activities, along with the management accounting information that helps managers of business. Examples of types of information will need to be responding. Furthermore, the paper will evaluate the budgeting, variance analysis, and activity based information, which is used within the company. Moreover, the recommendation of decisions must be applied by the managers of company with respect to factors of management accounting.
The second factor of fraud triangle is opportunity, there are high chance fraudsters would not be exposed because of their powers and position and there is a direct relationship between fraud opportunity and weak internal control (Dorminey et al., 2010). In the Madoff case, as a leader of the organization, he had sufficient power to plan the internal control system and corporate governance in such a manner that would only be favorable to him. It was found that the segregation of duties in Madoff scheme was not present (Fuerman 2009). The last element of fraud triangle is rationalizations - it is important to note how the individual is justifying the act committed by him. Day (2010) evaluates that Madoff was practicing this scheme firstly for his own benefit and for the benefit of his family by taking advantage of investors.
Corporate governance is defined in the King IV Report as the “exercise of ethical and effective leadership by the governing body towards the achievement of the following governance outcomes: • Ethical culture, • Good performance, • Effective control and • Legitimacy.” The purpose of this Corporate Governance Policy is to facilitate and encourage the ethical management of the company by its Board of directors, management and stakeholders in order to achieve the primary objectives of the company being sustainability, profitability and increased contribution to the socio-economic stability of our economy. DEFINITIONS Board “the Board of Directors of the Company” Director “a member of the Board of the company, as contemplated in section