Financial statements Essay
David Sheridan provided statements that did not reflect Global’s current financial situation which mislead creditors and investors. Borrowing more money would have indicated that the business was in the process of losing assets which would cause stakeholders withdraw and to discontinue investing with the company. This is similar to the Enron scandal, which greatly affected stakeholders not only financially but also morally. According the American journal of business (2006), “Enron’s top managers chose stakeholder deception and short-term financial gains for themselves, which destroyed their personal and business reputations and their social standing”. After reviewing the AICPA’s Articles of Professional Conduct, I believe that David violated Article I and III. According to Edmonds, T. (2010), Article I Responsibilities- “In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities”. Article III Integrity-
“To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity” (p. 65). There are three features of the fraud triangle. Edmonds, T. (2010) states, “Opportunity is shown at the head to the triangle because without opportunity fraud could not exist”. David found an opportunity that he thought would benefit the company, which allowed Global to hide non-profitable assets in another company without disturbing investors and creditors. It also provided an opportunity, as Global would not need to borrow more money.
Edmonds, T. (2010) explains, “The second element of the fraud triangle recognizes pressure as a key ingredient of misconduct. A manager who is told “either make the numbers or you are fired” is more likely to cheat than one who is told to “tell it like it is.” (p.67). I believe that David felt the pressure as to produce results in order to keep the business from failing. The third element of the fraud triangle is rationalization. According to Edmonds, T. (2010), “Few individuals think of themselves as evil. They develop rationalizations to justify their misconduct” (p. 67). I believe David and the others involved believed that they were not actually defrauding the people since they had planned to balance the sheets on the financial statements when the economy picks up or the business stock prices rise.
Edmonds, T. (2010). Survey of Accounting, 2nd Edition (2nd ed). McGraw-Hill Primis Custom Publishing.
Petrick, J. A., & Scherer, R. F. (2006). The Enron Scandal and the Neglect of Management Integrity Capacity. American journal of business, 18(1), 126.