Called to Account: Financial Frauds that Shaped the Accounting Profession

Description

Called to Account traces the evolution of the global public accounting profession through a series of scandals leading to voluntary or mandated reforms. Ever entertaining and educational, the book describes 16 of the most audacious accounting frauds of the last 80 years, and identifies the accounting standards and legislation adopted as a direct consequence of each scandal. This third edition offers expanded coverage of the Global Financial Crisis and international auditing. While retaining favorite chapters exposing the schemes of "Crazy Eddie" Antar, "Chainsaw Al" Dunlap, and Barry "the Boy Wonder" Minkow, new chapters describe the accounting problems at Lehman Brothers, Colonial Bank, and Olympus. Students will learn that financial fraud is a global problem, and that accounting reform is heavily influenced by politics. With discussion questions and a chart mapping each chapter to topics covered in popular auditing textbooks, Called to Account is the ideal companion for classes in auditing, fraud examination, advanced accounting, or professional responsibilities. Cover Half Title Title Page Copyright Page Dedication Table of Contents Acknowledgements Note to instructors Introduction Public accountants and fraud Note 1. Scandal and reform Scandal and reform Birth of a profession Generally accepted accounting principles The Savings & Loan crisis Auditors and fraud Auditor independence Professionalism The Great Recession Globalization Conclusion Notes Bibliography PART I: Birth of a profession 2. Out of darkness Capital markets The public accounting profession Outside critics Government regulation Conclusion Notes Bibliography 3. Ivar Kreuger Ivar Kreuger The Match King The Kreuger & Toll fraud The king is dethroned Notes Bibliography 4. McKesson & Robbins Coster né Costa né Johnson né Musica\ The McKesson & Robbins fraud The fraud is discovered Notes Bibliography 5. Into the spotlight Congressional action The Securities Act of 1933 The Securities Exchange Act of 1934 McKesson & Robbins The SEC investigates Conclusion Notes Bibliography PART II: The profession’s principle problem 6. Generally accepted accounting principles Demand for standards Committee on Accounting Procedure Accounting Principles Board The SEC’s influence on accounting standards Merger mania The next crisis in accounting Notes Bibliography 7. National Student Marketing If at first you don’t succeed … National Student Marketing Corp. “Cort”ing Wall Street NSMC’s accounting NSMC’s auditors Postscript Notes Bibliography 8. Equity Funding Equity Funding Corporation of America The Equity Funding fraud Secrist reveals secret Equity Funding’s auditors Aftermath Notes Bibliography 9. Déjà vu The Financial Accounting Standards Board The FASB’s influence The Moss and Metcalf investigations The Commission on Auditors’ Responsibilities Monitoring accounting firms Computerized accounting systems Conclusion Notes Bibliography PART III: The Savings & Loan crisis 10. It’s a wonderful life? Building and loan associations Government regulation The postwar boom Disaster Savings and loan accounting Gamblers’ paradise Notes Bibliography 11. ESM Government Securities ESM Government Securities, Inc. Legalized gambling The ESM fraud Discovery of the fraud Home State Savings & Loan Panic in Ohio Alexander Grant Aftermath Notes Bibliography 12. Lincoln Savings & Loan Keating’s early career American Continental Corporation The Lincoln Savings & Loan fraud The Keating Five Lincoln Savings & Loan’s auditors Resolution Notes Bibliography 13. Bank robbers Congressional hearings Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) Internal control reporting Mark-to-market accounting Other accounting reforms Aftermath The other side of the coin Notes Bibliography PART IV: The expectation gap 14. Auditors and fraud Public accountants Disclaiming responsibility for fraud The great debate John Dingell and Ron Wyden Continuing controversy Notes Bibliography 15. ZZZZ Best The boy wonder The ZZZZ Best fraud Barry’s gang Barry’s auditors ZZZZ busted Clean sweep Once a crook … Notes Bibliography 16. Crazy Eddie Crazy Eddie, Inc. The Antar family The Crazy Eddie fraud Crazy Eddie’s auditors Discovery of the fraud Fugitive Eddie Justice? Notes Bibliography 17. Closing the gap The Treadway Commission The “expectation gap” auditing standards Fraudulent financial reporting: 1987–1997 Subsequent auditing standards Notes Bibliography PART V: Beginning of the end 18. Auditor independence Auditor independence Auditors hired and paid by clients The revolving door Nonaudit services Joint ventures with clients The Independence Standards Board (ISB) Conclusion Notes Bibliography 19.Waste Management Waste Management Revolving CEOs Waste Management’s accounting Partners in crime Taking out the garbage Notes Bibliography 20. Sunbeam Chainsaw Al Sunbeam Sunbeam’s collapse Sunbeam’s accounting Sunbeam’s auditors Burnt toast Notes Bibliography 21. End of the millennium 8,064 violations The SEC’s proposal to modernize the rules governing auditors’ independence Impact of the SEC’s new rules Materiality guidance Conclusion Notes Bibliography PART VI: From profession to regulated industry 22. Professionalism Serving two masters Advertising Direct solicitation Competitive bidding Assurance services A herd of wild cognitors The growth of nonaudit services Arthur Andersen Commercialism Notes Bibliography 23. Enron Ken Lay and Enron’s founding Jeffrey Skilling and Enron’s transformation Andy Fastow and Enron’s accounting Enron’s collapse Enron and Arthur Andersen Lay and Skilling charged Notes Bibliography 24. WorldCom WorldCom I’m sorry, your call cannot be completed … Wrong numbers Reluctant participants Night detectives WorldCom’s outside auditors Aftermath Notes Bibliography 25. The perfect storm The fall of Arthur Andersen Sarbanes–Oxley Auditing the auditors Section 404 Statement on Auditing Standards No. 99 Conclusion Notes Bibliography PART VII: There’s no place like home 26. Open house Fannie and Freddie Wall Street New kids on the block Rating agencies Housing bubble Sitting on dynamite Notes Bibliography 27. Taylor, Bean & Whitaker Mortgage mogul Sweeping problems under the TARP Auditors pay the price The living dead Notes Bibliography 28. Lehman Brothers From Montgomery to Manhattan Dealing in debt Now you see it, now you don’t The gorilla and the referee Lehman’s bankruptcy Aftermath Tragedy or farce? Notes Bibliography 29. The Great Recession The U.S. financial crisis Legislative reforms Accounting reforms Fines and lawsuits Not just a local problem Notes Bibliography PART VIII: The world is flat 30. It’s a small world The Tower of Babel International accounting standards American reluctance to adopt IFRS International auditing standards Regulatory arbitrage Fraud is a global problem Notes Bibliography 31. Parmalat The Milk of Champions Parmalat begins to sour The Parmalat fraud Rotating auditors Wiping up spilt milk Notes Bibliography 32. Olympus Olympus Tobashi Ringing the bell Three blind mice Rising from the ashes Notes Bibliography 33. As the world turns Canada Australia Japan European Union United Kingdom Conclusion Notes Bibliography 34. Conclusion Mandatory financial reporting and compulsory audits Development of GAAP Auditing procedures Auditors’ responsibility for fraud Public accounting Government regulation Conclusion Notes Bibliography Appendix A: Discussion questions Appendix B: Suggestions for integrating Called to Account with popular auditing texts Index