Common grounds of accounting scandals reflected on Wikipedia
| Pages | 440-474 |
| Date | 07 October 2014 |
| Published date | 07 October 2014 |
| DOI | https://doi.org/10.1108/JMLC-10-2013-0037 |
| Author | Cenap Ilter |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Common grounds of accounting
scandals reected on Wikipedia
Cenap Ilter
California State University Stanislaus, Modesto, California, USA
Abstract
Purpose – The purpose of this paper is to explore the type of accounting scandals reported in
Wikipedia which have occurred in different countries on different continents. It also explores the
frequency and the dollar amount of the type of accounting scams that have been committed by the
companies.
Design/methodology/approach – The paper analyses each company‘’s committed accounting
scandal(s). It then classies the companies on a country, type of scandal and industry basis. It further
analyses the distribution of accounting scandals and explains the major ones in its category.
Findings – The paper concludes that within the connes of the information reported in Wikipedia, the
majority of accounting scandals have occurred in USA both in number of scams and in USD amount.
The most frequent type of accounting scam is overstatement of assets and understatement of liabilities
including roundtrip sales. Another inference from the paper is that the accounting scams can occur
anywhere at any amount. It is not a country-specic issue.
Practical implications – Auditors, accounting and auditing instructors and accountants talk about
accounting scandals. Auditors, in particular, are required to issue audit reports that are free of material
errors either deliberately or innocently made. This paper sheds light onto the issue, as it shows what
major type of accounting scandals have been committed in the literature, as they had devastating
repercussions on the shareholders.
Social implications – Resources are scarce. Public’s savings must be sourced to the companies that
produce the value added to the society. Misrepresentation of nancial statements is an issue which
distorts this relationship. The paper, by showing the type and amount of scandals, is opening up the
issue to public that people be aware of what type of company they are investing in and what potential
risks they are undertaking that may be leading them to be more selective in their investments.
Originality/value – The paper covers the original stories that have occurred throughout the world
since 1970s. The names of the companies are original and the amounts of scams have either been
collected as USD from the story itself or converted to USD at time of the event. All USD gures have then
been restated to the 2011 year-end purchasing power. Thus, the cases are reecting the approximate
USD value as of 2011 year-end derived from its historical original value. The paper reshufes the data
in certain ways so that the reader will have a better view of the cases than that of presented in Wikipedia.
Keywords Accounting fraud, Embezzlement, Overstatement, Ponzi scheme, Understatement
Paper type Research paper
Introduction
Table I has been prepared by PriceWaterhouse Coopers (PWC) based on 3,877
respondents from organizations in 78 countries which provide a global picture of
economic crime. On page 17 of this report – where the gures have been taken from – it
says that:
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
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Journal of Money Laundering Control
Vol. 17 No. 4, 2014
pp. 440-474
© Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-10-2013-0037
Certain growing markets surprisingly reported low levels of fraud – namely Indonesia, India,
Romania and Greece. This might be because their fraud detection methods are ineffective
and/or their respondents are reluctant to report fraud.
The above table gives an idea that “fraud” has no boundaries. It could happen any time,
anywhere, no matter how developed the country is.
A comprehensive analysis of all major accounting scandals occurred in the world is
beyond the reach of this paper. The paper has been written on the accounting scandals
reected on Wikipedia (http://en.wikipedia.org/wiki/Accounting_scandals) and is
conned to the information provided.
There are 57 cases-companies reported on Wikipedia. One of the cases talks about “penny
stock” crime which describes what a penny stock scam (Microcap stock fraud) is. There is no
company involved mentioned on this item, and accordingly it has been taken out of the
analysis. The other company which was taken out of the analysis is One. Tel. One. Tel is an
Australian group of companies in telecommunication business whose directors were
accused of not showing “care and diligence” by Australian Securities and Investment
Commission – ASIC. ASIC’s case was dismissed by the Supreme Court of New South Wales.
Dismissing The ASIC’s case, which was originally launched in 2001, the judge said, the
corporate regulator had “failed to prove any aspect of its pleaded case against either
Table I.
Reported fraud by
territory
% of respondents in 2011 % of respondents in 2009
Territories that reported high levels of fraud (40% or more)
Kenya 57
South Africa 66 62
New Zealand 50 42
Spain 47 35
Australia 46 40
Argentina 46 39
France 46 29
The USA 45 35
Malaysia 44 28
Mexico 40 51
Territories that reported low levels of fraud (25% of more)
Romania 24 16
India 24 18
Sweden 22 19
Slovakia 21 29
Turkey 20 15
Switzerland 18 17
The Netherlands 17 15
Italy 17 19
Greece 17 23
Slovenia 17 Didnot participate on 2009
Indonesia 16 18
Japan 6 10
Source: PWC global economic crime survey November 2011 p. 17, available at: www.
pwc.com/en_GX/gx/economic-crime-survey/assets/GECS_GLOBAL_REPORT.pdf
441
Accounting
scandals
reected on
Wikipedia
defendant”. ASIC had sought rulings from the court, via its civil action, on the duties and
obligations of ofcers to disclose a company’s nancial position to the board and the market.
In one of the most drawn out civil cases seen in NSW, ASIC alleged One. Tel Founder
Mr Rich and Finance Director Mr. Silbermann had failed to meet their duty of care in the
months leading to the company’s collapse in May 2001 (Main, 2009). Excluding the above
two cases, the analysis were concentrated on 55 companies.
Research questions
The accounting scandals reported on Wikipedia occurred at different times in different
countries and each scandal had its own characteristics. The author had the following
research questions:
RQ1. What is the approximate total USA Dollar (USD) amount of accounting
scandals as of most recent purchasing power terms?
RQ2. What is the distribution of the countries of the 55 companies analyzed?
RQ3. What types of accounting scandals were the companies involved in?
RQ4. What type of industries were they involved in?
RQ5. Were fraudulent activities industry-specic by the nature of the fraud?
Methodology
Each accounting scandal was analyzed and its reported currency other than the USD
has been converted to USD at the approximate date of the event. Each USD gure has
been restated from its original date to December 31, 2011 (most current available USD
wholesale price index) purchasing power by USD wholesale price indices.
Some companies have committed more than one type of crime (i.e. embezzlement and
misrepresentation). Each company’s case has been analyzed in terms of what type of
accounting scam they were involved in and the time of the crime.
Similar types of crimes have been grouped under one heading even though there were
nuances within them. The headings of accounting scandals, their brief explanations and
contents are as follows:
Bribery
At its heart, a bribe is a business transaction, albeit an illegal or unethical one. As in the
GSA case discussed above, a person “buys” something with the bribes he pays (Wells,
2005, p. 261). In the study, there are three companies that have committed the illegal
money transfers to foreign ofcials to make more protable business.
Embezzlement
According to Donald R. Cressey (one of Sutherland’s brightest students at Indiana
University during 1940s) “embezzlers”, whom he called “trust violators”, intrigued Cressey.
He was especially interested in the circumstances that led them to be overcome by the
temptation; Cressey’s nal hypothesis was: Trusted persons become trust violators when
they conceive of themselves as having a nancial problem which is non-shareable, are aware
this problem can be secretly resolved by violation of the position of nancial trust and are
able to apply to their own conduct in that situation verbalizations which enable them to
adjust their conceptions of themselves as trusted persons with their conception of
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