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Strategic Business Accounting - Strategic Issues in Accounting


Question 1: Write an essay on the topic: Keeping CPA firms honest.

Answer: Keeping CPA firms honest: On January 23, 2018 former KPMG partners were charged of fraud after the audit firm received the notice regarding the audit inspection by US regulators in an improper fashion. Along with the former partners three other accountants were accused for the same. The Securities and Exchange Commission (SEC) filed charges against KPMG and Public Company Accounting Oversight Board (PCAOB), that regulates US auditors, accountants who received or passed information on audit inspection such that the firm could prepare before hand for the inspection. To get job in KPMG two employees from PCAOB provided information regarding the inspection to KPMG. Additionally, another employee at PCAOB transferred information to his former colleague with the hope that he can get a job in KPMG. On gaining knowledge about this shocking misconduct which can literally be termed as stealing, KPMG immediately fired the six accountants who were involved in the fraud. Few insights of the fraud that were highlighted during the inspection process are (Shubber K, 2018):PCAOB's then former director Brian Sweet was alleged of taking sensitive inspection related documents to KPMG on receiving a job. During this period KPMG was trying for performance improvement in PCAOB inspection and hired staffers from the former firm to know secretly which area would be inspected.Mr. Sweet former employee of PCAOB was asked by David Middendorf and David Britt regarding the areas that would be targets during the inspection. Later Mr. Sweet on request of Thomas Whittle, another defendant and KPMG's partner mailed banking inspection list.Another former PCAOB employee who was assigned to its KPMG inspection team Cynthia Holder is also alleged to have copied PCAOB confidential information in a thumb drive before quitting the regulator and joining KPMG.It is clearly a case of revolving doors between the regulator and large audit firms. During the hearing Mr. Sweet had taken the first step to redress his mistakes whereas, other defendants were willing to defend themselves.

From the facts it can be understood that there has been breach of conduct by both former employees of PCAOB in order to gain job at KPMG and former partners of KPMG with a view to improve the position of KPMG by hiding its audit deficiencies. Even though KPMG had taken remedial action by firing these individuals, it is still intriguing to note that such an action happened in first place(Rapoport, 2018).The move of KPMG to fire the people involved and even individuals who failed to make improper advance warning or report the situation in a timely manner is appreciable and from the news it can also be noted that KPMG has been co-operating with the government and is taking measures to assure such conduct will not reoccur.Honesty and integrity play a very important role in accounting and auditing because it is based on these concepts only investors trust the information they receive from the invested company. These characteristics help the professional to make appropriate financial decisions and judgements. In case of KPMG there was lack of honesty and integrity, because it was trying every way to improve its position before the regulator desperately that it took this step. Thus, it is advisable to penalize these employees and even cancel their CPA licenses or make them prosecuted publicly such that every person resorting to such form of fraud would think twice before doing (Ray. L).The regulator company is also advised to tighten its information and technology norms by having an ongoing review and as well as regarding its ethical and compliance protocol. It should make it clear to its employees that undermining integrity of the regulator'sintegrity will not be targeted. It is advisable that the regulation company take stringent action of sacking the employee who has been helping her former employees currently working in KPMG with the hope of getting the job and cancelling her licence to work for a period of 5 years. Additionally, it should also take measures to keep an eye on its policies and have a strong firewall restricting the employees from accessing other mails in during office hours and avoiding receipt of mails from third party. It is never advisable to micro-manage the functioning of its employees but given the scenario micro-management can also be considered as one of best measure to overcome such issues (Wix S., 2018).The punishment imposed by SEC on Mr. Sweet clearly shows that it would never tolerate such schemes that subverted the important process. It charged the six public accountants for sharing confidential information in inspection to the network. The charges imposed include barring them from practising before SEC as an accountant in future (Wix S., 2018). In addition, they should also be barred the opportunity to work in any accounting firm for a set period such that they would learn not to breach ethical policies of the organization and abide by its code of conduct. Data theft and breach of ethical policies of an organization should be severely punished because management of storage data is integral and important part of the business and breach of which would impact the performance and goodwill of the company. Thus, even companies also should be punished for not taking proper measures to protect data management storage.In addition to severe punishment and penalties, the firm should observe good peer review process and encourage strict whistleblowing by assuring protection for the person who does whistle-blowing.Good peer review can be considered as a practise-monitoring program that helps in monitoring the accounting and auditing practices of CPA firms and ensure that American Institute of Certified Public Accountants (AICPA) members and their CPA members do provide quality work. This provides the CPA firms an opportunity to improve quality of their processes and services (Stinn.M, 2017).Additionally, civil and criminal penalties have also been imposed on these six accountants.It is advisable for the firms to follow good peer review to avoid situations as discussed above. PCAOB and KPMG should imbibe this practice such that any discrepancies in the work flow of their organization would be known to them and they would get chance to correct the error before it becomes a public disclosure. The firms get opportunity to gain knowledge of the grey areas they need to develop or take measures to improve (AICPA, 2009). Peer review always ensures that company provides high quality services to its clients. It will help the company to gain knowledge of its insights.In addition to the peer review technique the other technique includes encouraging whistleblowing technology. The wrongdoings within an organization are disclosed through a whistle-blower.There two possible attributes that encourage an individual to resort to whistle-blowing: firstly, it is done either for vengeance or to embarrass an individual or for monetary benefits; and secondly, only as the last result. This method should be encouraged by all the accounting firms such that it can prevent any form of fraud in the organisation or gain knowledge of the organization's insights. When an organization is simply not able to combat, or address wrongdoings and it is essential either for the public to know about the wrongdoing or requires the organization to resolve or correct it. Further, it can be considered as a way for promoting justice where the wrongdoers can be held accountable for their action. With increasing recognition whistleblowing has become one the set tools to expose wrongdoings of the organization. Thus, every legislation encourages firms to promote this method (Schultz. D, 2015).Even though, this method exposes serious bad behaviour of the organization, it is essential to protect the whistle-blower from any form of reprisal or retaliation from the aggrieved party. One of the ways to protect whistle-blowers from any form of reprisal or retaliation and encourage to expose the wrong doings of company is giving them legal protection under Sec 806 of the Sarbanes-Oxley Act of 2002. Under this Act, public company employees who report suspected violations are protected from any form of discrimination as a form of whistleblowing. Under this section whistle-blowerhas the right to bring any form of legal action against private individual or organization if they believe or suffer from any form of discrimination (Martin B.H.D, Hoffman B, and Casey E.F, 2004).From the above discussion it can be concluded that it is very essential for every CPA firm to be honest and maintain integrity. Every firm is bound to protect its confidential information. Further, the organization should take essential measures to avoid confidential information of the company from being passed over to outsiders or competitors. Only if PCAOB had implemented stringent measures on its employees in relation to data privacy and security maybe they would not have had the opportunity to share or carry information outside the company. PCAOB is advised to implement stringent measure to protect data theft. Even though KPMG did take swift action of dismissing the employees ho were found involved in the act and engaged a outside legal counsel for conducting a detailed investigation into the matter, why did it not take measures to avoid happening of such issue. However, it can be concluded that through stringent punishments, cancellation of license, peer review and whistle-blowers among others are measures available for the CPA firms and audit firms to avoid this form of conduct.


Questions 2: Write an essay on the topic: Internal Control.

Answer: Internal Control: Diane Backis an Upstate New York woman was an accounting manager at Cargill, Inc. was found guilty of emblazonment for a span of 10 years causing $25 millions losses to the company. She plead guilty of emblazing at least $3.1 million from this agricultural giant by filing false income tax returns and mail fraud. Backis admitted that stealing customer payments by directing them to her personal account. She was also involved in fraud associated with creation of wrong invoices for her self-benefits. She also admitted that she filed a false 2015 individual income tax return omitting taxable income constituting stolen customer payments. The case was investigated by IRS-Criminal Investigation and FBI. She was sentenced 20 years of prison, three years of supervised release and a fine of $250,000. On pleading guilty Backis in restitution had to pay Cargill, Inc. the emblazed amount, forfeiting her Cargill, Inc. pension benefits, her house in Athens and an investment brokerage account (McCabe S, 2016).From the facts of the case it can be understood that being one of the agricultural giants, Cargill, Inc. could not prevent life-rime fraud. Only if it had devised proper internal control it could have avoided such situation. Fraud by the employee of the company can be observed as significant problem every form of organization faces. Detection and prevention can be considered as the best methods for detecting the fraud and reducing the associated losses. Organization should plan better to prevent any form of fraud because preventing fraud is much easier in compared to recovering the losses (CG Team, 2009).Fraud prevention is the vital step to be taken by every form of option. By detecting the behavioural traits displayed by the fraud perpetrators organizations can be saved from the consequences of the fraud. According to the ACFE2014 report fraud in your organization lasted for at least 18 months and imagine the loss the company would suffer before being detected. Luckily, a fraud occurrence can be minimised by the following ways:Knowing your employee. It is important for the management to have complete knowledge about the employee it is recruiting into its firm. Through behavioural traits it is easy to detect the intention to commit fraud. By observing and listening to employees the organization can identify potential fraud risk. Even attitude change of the customer also gives hint about fraud. Unfortunately, employees of your least expectation commit fraud thus, it is very much important that organization keeps complete knowledge and track of the organization.Developing Awareness among employees and setting up a reporting system. Every employee organization is required to be aware of fraud risk policy that are inclusive of different frauds and consequences that are associated with each form of fraud. Through this control the company can even prevent thought of fraud. In addition to awareness of the organization's fraud risk policy it is also important to have a proper reporting system. Not all employees willingly come forward to report any form of fraud activity, thus, the organization should setup an anonymous system of reporting where employees have the option to hide their identity and complain about any fraudulent activity they come across or feel suspicious about (CG Team, 2009).In addition to above mentioned ways the organizations implement certain internal controls that detect and deter any form of fraud, hire experts who help the organization in framing antifraud policies, vacation balance monitoring and by connecting to positive working environment, among others (CG Team, 2009). Implement Internal Controls. A program or plan that are being implemented to safeguard assets of the company, ensure that there is integrity in their record and to detect and deter theft and fraud. Implementing internal controls is one of the effective ways for detecting fraud. It can also be defined as a preventive control which are designed to stop occurrence of fraudulent activity. In this method there is segregation od duties where the responsibilities are distributed. For example, in a retail shop the job of checking register with the cash and check register receipts is done by one individual while deposit slip is prepared by another, the third person has the duty to deposit these receipts in the banks. In this way the work segregated among three individuals which will also help in revealing any form of discrepancies.Additionally, the other form of internal control that helps in reducing fraud is documentation. Based on the above example, if there is documentation of sales receipts and bank deposits then the owner can check through the accounts and see if all the transactions have been entered perfectly or there is discrepancies. Further, this will also help in checking whether the purchase order, cheque no's and invoices have been numbered correctly or not. Thus, through proper documentation any form of fraud can be predicted and the owner shall be alert when new vendors emblaze the billing scheme setup and make payments to fictitious vendors through P.O. Box (CG Team, 2009).Further, it is advisable to maintain system of check and balances to avoid giving single person the entire control over all the parts of financial transactions. Other internal controls that prevent and help in detecting fraud include giving Board of Directors oversight of management and agency operations, reconciliation of bank accounts monthly, take measures to protect the petty and other forms of cash fund and ensure that assets of the agency such as vehicles, cell phones and other agency resources are utilized only for official business (Office of Mental Health).From the facts of the case it can be understood that if Backis had not had the entire responsibility vested in her hands then she would not have indulged in such huge frauds. The entire duty with regards to maintaining case balances and collection of loans or creating customer contracts, creating invoices and sending them to customers then she would not have indulged in such form of fraud. Misappropriation of assets, corruption and fraud schemes associated with financial transaction of the organization occur especially when large amount of responsibilities are vested in the hands of a single individual who is ready to seize any opportunity that arises for committing their schemes (Marks T.J., 2019).Among the different forms of frauds that impact the functionality of the company, occupational fraud can be termed as such a fraud where the individual misuse their position and violate norms under the Foreign Corruption Practice Act (FCPA). Such activities cause every form of organization to rethink about their internal control policies, approach towards governance, internal audit, compliance, and risk management. It is clear from the regulators that simply maintaining a compliance program is not enough for ensuring safety of the financial transactions of the organization. It is important to maintain effective compliance program and internal control to detect and prevent any form of fraud in the organization.Anti-fraud control is other form on internal control that aims in minimizing the opportunities for fraud. This control helps the organization in controlling any form of frauds that are occurring in the organization. The rules associated with this form of control should be stringent and breach of this control must result in harsh consequences. Continuous monitoring of internal controls is very essential for the organization to avoid any form of fraud because fraud inherently involves concealment, deflection, distraction, and deception among many other forms of fraud that have never been detected. In the Cargill company case, Backis had the same form of advantage. She was in the top managerial position and based on responsibilities vested on her there is no segregation of work nor there has been any form of internal control to prevent occurrence of this fraud. Thus, she being in a advantageous position could manipulate the funds of the company and have them invested to her personal account. As discussed above many form of internal controls monitor the functionality of the organization and prevent fraud and errors that have been associated with the organization. Lack of this measure has made Cargill, Co to face major losses through embezzlement of funds (McCabe S, 2016).Additionally, through internal control fraud can be prevented from bud level, that is from the initial stages. By taking simple steps such as insisting to check the consigning of the cheques, periodical review or recognition by executive director or any other designated employee, regular review of bank statements and reconciliation of cheques with the bank statement of the organization and maintaining an annual audit (Watters A.L.).Thus, from the above discussion every company irrespective of its size or form must implement internal control technique to prevent any form of real time fraud. It should maintain distribution of work and responsibilities especially when it is associated with financial transactions. Lack of internal control would result in real time frauds such as the current case which would impact the financial position of the company as it incurs major losses. By the time the fraud is detected the company might have incurred heavy losses as in the current scenario. Effective monitoring is very essential for avoiding such form of frauds. Further, it can be observed that through an effective and good internal control with right balance of deterrent, preventive and detective controls the organization can be protected from vulnerability to fraud and reduce its monitory losses. Thus, Cargill, Co. must take measures to implement effective internal control in addition to other measures specified above to prevent occurrence of these kinds of frauds. Control or management of funds associated with the functionality of the organization should not be limited to single individual.


Question 3: Write an essay on the topic: Litigation.

Answer: Litigation: A recent lawsuit against BAYER resulted in a multimillion-dollar verdict against the company byan individual exposed to ROUNDUP weed killer. ROUNDUP is produced by Monsanto. Recently,Bayer acquired Monsanto. How should BAYER account for the verdict? Justify your answer.

From the facts of the case it can be noted that Bayer had been liable to pay $81 million in damages to the claim made by a man that Roundup weedkiller caused his cancer. Monsanto being the maker of Roundup was taken over by Bayer recently, who believed that the product is safe and stated that it planned to appeal the verdict given by the San Francisco jury. One of the prominent German governance expert questioned on what measures Monsanto took any measures to overcome the warning signs. Bayer even having the knowledge of the 3600outstanding glyphosate-related issues that were already underway did not show much interest in knowing the basis or facts behind these cases. Bayer rejecting the notion and argued that they had made required research based on the information they have received before closing deal with Monsanto. The risk associated with Monsanto's glyphosate business was also reviewed by the board of management during the acquisition process (Meyer D, 2019). Further representative of Bayer argued that the risk assessment clearly specified that when the products were used according to the given directions. Further they noted that based on the regulatory authorities worldwide and scientists it was assessed that low usage of glyphosate is safe. This shows that since the inception of Roundup's inception Monsanto had refused to act responsibly and even tried to influence the regulators and scientists on the widely-use of product safety. The company rather than taking measures to act responsibly focused on overriding the opinion of the public and undermining the concerns of any regarding the genuine and legitimate concerns about Roundup (Sage A. and Bellon, T., 2019).Bayer had been held liable as Edwin Hardeman was not warned about the herbicide's alleged cancer risks. Thus, Bayer being the giant who acquired Monsanto had ben held liable for the same. Bayer is accountable to bear the liability for taking over the company but as we see they are of the opinion that their Roundup was safe and that the U.S. Environmental Protection Agency, the European Chemicals Agency and other regulators found that glyphosate was not carcinogenic to humans, however, the World Health Organization's cancer arm has a complete different opinion regarding the same.Bayer, it can be noted has taken every form of measure to prove that the use of glyphosate is safe when used as directed and that it had reviewed 800 reports before making this acquisition. It can further be noted that the safety of Roundup has been consistently supporting the safety of Roundup and glyphosate because the herbicide had long been found safe. Thus, it can be noted that irrespective of its building cases and allegations Monsanto has stood its position of claiming that glyphosate was safe. Reading the verdict we are of the opinion that the company is concerned only in proving its point that they were safe by trying to override any form of other researches and being its acquirer and complete supporter Bayer is liable to pay to the individuals who have suffered.

St. Louis juries have awarded several plaintiffs sizable verdicts against Johnson and Johnson.How should Johnson and Johnson account for $4.6 billion verdict related to talc powder? Justify your answer.

From the facts of the case it can be noted that Johnson and Johnson (J&J) had been held liable that its products contained asbestos which resulted in causing ovarian cancer to its customers. St. Louis awarded verdict against J&J for $3.15 billion in punitive damages against Johnson & Johnson and $990,000 against J&J Consumer Inc. Even though the company was able to receive certain relief from its previous similar case but in this case it could not get in similar relief. Plaintiffs relieved from this move felt that J&J would make sure that it would produce talc powers without asbestos and take measures to protect babies and mothers (Patrick R, 2018).This appeal had been considered as first talc powder trial against Johnson and Johnson on claims associated with testing the presence of asbestos. Lead plaintiffs also claimed to be the first to see the internal documents of the company which revealed the knowledge on presence of asbestos in the product and their failure to warn the consumers. However, J&J is found to argue that their powders do not contain any form of asbestos (Hsu T, 2018). Irrespective of its arguments the plaintiffs succeeded in their trial (Patrick R, 2018). J&J has been found guilty and the trial ended in a process of giving a strong message to the companies that aimed at selling their products not making any form of changes to safeguard the health of the consumers using it. J&J should account this verdict by proving that their talc did not contain any form of asbestos. As in all the other cases we see that J&J plans to appeal the recent judgement to reduce the punitive damages. J&J should account for these damages as a form of warning and take measures to prove that the allegations against them were no correct. However, on a sad note irrespective of continuous allegations against the talc powder we do not observe that J&J has taken any form of measures to avoid them (Steinberg J, 2018). If confidant that their powder contained no form of asbestos it is advisable that J&J do make research and prove it to the public and then prove the claims made against it in the trial to be of no value. J&J had been failing to prove that claims made against it are not valid and should be available to make all forms of available appellant remedies. Further, the firm was concerned that linking their talc to cancer is based on an inclusive search.Thus, in our view it can be noted that irrespective of many claims, trials and verdicts against we do not see J&J taking any steps to prove that their products contained no form of asbestos, it is simply banking on the errors present in the current trial against it. It must prove absence of the said chemical that causes cancer or give health advisory warning on all its products before launching them into the market. Thus, J&J can account itself in this verdict by proving itself not guilty or make the required advisory notice on its products.

How should Canada Dry and its parent company Kerrigan Dr Pepper (NYSE: KDP) account for the lawsuit filed against it because its ginger ale allegedly does not contain ginger root? Justify your answer.

From the facts of the case it can noted that Kerrigan Dr Pepper and its subsidiary Canada Dry were held in a litigation where they are sued on the ground that their ginger ale does not contain any form of ginger. The defendant did claim the presence of ginger in its drink through different forms of advertisements, and promotions. However, absence of ginger in the drink proves that the company had resorted to false advertisements where it promises that Canada Dry does provide health benefits of ginger that is used to help with nausea, digestive issues, muscle pains, inflammation and high cholesterol.From these claims it can be noted that Canada Dry and its parent had resorted to act of misrepresentation, unjust entrancements/restitutions, common law fraud, deceit, breach of implied and express warranties. Members of the law firm expressed in the Daily News that acting under a reasonable behaviour, the advertisements should not mislead consumers (MarketScreener, 2018).Canada Dry and its parent company on an embarrassing climb-down settled all its claims that it mislead customers and even removed the caption ‘Made From Real Ginger.' It claimed that to avoid protracted litigation only it had settled the claims. However, it does claim that the drink did contain small percentages of ginger in its drink. Further, it also argued that made of real ginger caption cannot be misconstrued by any reasonable customer as conveying a promise that this product does contain significant amount of ginger that is helpful in providing consumers therapeutic benefits. However, the chemical analysis made noted that the main reason for the consumers to purchase Canada Dry was the presence of ginger, but if the amount of ginger is not enough to provide any benefits associated with ginger then it is misrepresenting and indulging in fraud.Accounting for lawsuit filed against Canada Dry and its parents it can be noted that its move to make settlement has been correct but arguing that their drink still was made of ginger was not acceptable because the percentage is very minimal and too little to give any form of health benefits. Arguing that its products do contain ginger and are providing health benefits is overwhelming because every form of therapeutic issue required certain amount of ginger and claiming that their drink was made of ginger and provided health benefits associated with it is not acceptable. Further, it can be observed that there are legal risks associated with marketing campaigns. They can make certain commercial exaggeration and commercial puffery like the Redbull ad which states that it gives you wings and common knowledge that it energises you in that form. This form of commercial puffery is accepted, but stating that it is made from ginger and helps in providing health benefits associated with ginger is beyond commercial exaggeration and will be fooling a reasonable person (Arends B., 2019).The advertisement of a product should not provide false information to the buyers because it is the information in the advertisement and promotions that effects the buyer's decision to purchase the product. Thus, it can be concluded that any product advertisement should not provide false information or make false claims but give reasonable information making the buyer to purchase the product.


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