Course Title: Advanced Financial Accounting
Course Code: AcFn 512
Credit Hours: 2
Instructor’s Name: Obsa Teferi ( Asst Prof), Cell
Phone: +251(0) 917 85 36 05, Email:
[email protected] Chapter One
Ethical Issues in Advanced
Accounting
WHAT IS FRAUDULENT FINANCIAL REPORTING?
Intentional misstatements or omissions of
amounts or disclosures in financial statements
to deceive financial statement
Example
Manipulation, falsification, or alteration of
accounting records
Misrepresentation in, or intentional omission
from, the financial statements of events,
transactions, or other significant information
Cont’d
Intentional misapplication of accounting
principles relating to amounts, classification,
manner of presentation, or disclosure
Fraud frequently involves the following:
(a) a pressure or an incentive to commit fraud
(b) a perceived opportunity to do so
Cont’d
The most common forms of Financial fraud
involves:
Overstating revenues by recording future
expected sales
Inflating an asset's net worth by knowingly
failing to apply an appropriate depreciation
schedule
Hiding obligations and/or liabilities from a
company's balance
Example
Top Accounting Scandals
Waste Management Scandal (1998) ...
Enron Scandal (2001)
WorldCom Scandal (2002) ...
Tyco Scandal (2002) ...
HealthSouth Scandal (2003) ...
Freddie Mac Scandal (2003) ...
American International Group (AIG) Scandal (2005) ...
Lehman Brothers Scandal (2008)
Enron Scandal (2001)
In 2001 that the company had used accounting
loopholes to hide billions of dollars of bad debt,
while simultaneously inflating the company’s
earnings. The scandal resulted in shareholders
losing over $74 billion as Enron’s share price
collapsed from around $90 to under $1 within a
year
Cont’d
An SEC investigation revealed that the
company’s CEO, Jeff Skillings, and former CEO,
Ken Lay, had kept billions of dollars of debt off
the company’s balance sheet. In addition, they
had pressured the company’s auditing firm,
Arthur Andersen, to ignore the issue.
Lehman Brothers Scandal (2008)
Lehman Brothers was a global financial services
firm based out of New York City, New York. It
was one of the largest investment banks in the
United States. During the 2008 financial crisis, it
was discovered that the company had hidden
over $50 billion in loans. These loans had been
disguised as sales using accounting loopholes.
Cont’d
• According to an SEC investigation, the
company had sold toxic assets to banks in the
Cayman Islands on a short-term basis. It was
understood that Lehman Brothers would buy
back these assets. This gave the impression
that the company had $50 billion more in cash
and $50 billion less in toxic assets. In the
aftermath of the scandal, Lehman Brothers
went bankrupt.
Financial Fraud Cases In Ethiopia
Ethiopia: Central Bank Blacklists Individuals for
Alleged Forex Fraud
In January 22, 2021 The central bank has ordered all
banks to immediately terminate business relationships
with 65 individuals suspected of foreign exchange
fraud valued at 13 billion Br. The list includes three
businessmen who were found to transfer, in multiple
transactions, from 1.1 billion Br to over three billion
Br in three month.
Cont’d
The letter stated that the alleged illegal
transactions took place at 10 banks.
Wegagen Bank,
Lion International Bank
Commercial Bank of Ethiopia (CBE)
Abyssinia, Awash, United, Berhan, Abay, Addis
and Cooperative Bank of Oromia
Cont’d
The highest alleged foreign currency fraud was
made by an individual named Mohammed Ali,
totaling 3.2 billion Br at Wogagen Bank.
The letter also stated Repetitious daily account-
to-account transfers made by a few individuals
were traced, according to the letter.
Cont’d
About 531 million Br was debited from banks via
illegal transactions, according to the letter.
Twenty-three individuals made 30,290
transactions through six bank branches located
at border cities, namely Togochale, Qefira,
Bullae, Hartishek, Sulul and Jehedin.
Read the original article on Addis Fortune, 30
JANUARY 2021, INDIVIDUAL ASSIGNMENT
Mobile banking Fraud Ethiopia
Federal Police says
There were 204 court cases involving mobile banking
fraud during two months alone, April and May, 2022.
Source: The Reporter , June 2022 https
://www.thereporterethiopia.com/24052/
The Minister also disclosed that about 1.8 bill ETB
was misappropriated by fraudsters from banks in
the last four years
Analysis of Ethical Standards for Management
Accountants and Financial Executives
a. Conflicts of interest
b. Discreditable acts
Conflict of Interest - result when individuals reap
inappropriate personal benefits from their acts in
an official capacity
For example: For example, a chief accounting
officer might cook the books to overstate pretax
income of the employer corporation in order to
obtain a larger performance bonus
Cont’d
Discreditable Acts
Refers to professional actions and personal
choices that are inconsistent with the values of
the profession
The three ethics codes
1. Institute of Management Accountants (IMA)
2. American Institute of Certified Public
Accountants (AICPA)
3. Financial Executives International (FEI),
Institute of Management Accountants (IMA)
• Competence
• Confidentiality
• Integrity
• Objectivity
Financial Executives International
(FEI)
Comply with applicable rules and regulations
of federal, state, provincial, and local
governments, and other appropriate private
and public regulatory agencies.
Act in good faith, responsibly, with due care,
competence and diligence, without
misrepresenting material facts or allowing
one’s independent judgment to be subordinat
American Institute of Certified Public Accountants (AICPA)
The Code of Professional Conduct of the
American Institute of Certified Public
Accountants consists of two sections—(1) the
Principles and (2) the Rules
The Principles provide the framework for the
Rules, which govern the performance of
professional services by members
Reading Assignment
What are financial ethical issues?
The most frequently occurring ethical
violations in finance relate to insider trading,
stakeholder interest versus stockholder
interest, investment management, and
campaign financing.
