FINANCIAL REPORTING

 

 

 

 

 

 

Financial Reporting

 

Financial Reporting

 

Introduction

Corporate crime is criminal activity committed by organizations meant to profit the organization. An understanding of corporate crime often requires learning the language of business and conceiving of both crime and victimization in a collective and aggregate sense. Corporate crime has existed as long as there have been corporations, but history shows that more recent corporate crimes have been more extensive and have resulted in greater losses to victims than in years past. There are several different kinds of corporate crimes, and each of these results in different kinds of harm or costs.

 

Discussion

Enron's Case

The extent of corporate crime was most keenly felt in the first decade of the 21st century, when the stakes seemed to grow exponentially. In 2001, Enron, a very large energy company headquartered first in Omaha and then in Houston, disclosed that it was in financial trouble. Once the world's largest energy trader, Enron filed for the largest-ever U.S. bankruptcy amid an investigation surrounding off-the-book partnerships used to deflate debt and inflate profits. Enron's board of directors also allowed management to engage in high-risk business practices and gave the executives free rein. Members of the board allowed Enron to move nearly half of its assets off the balance sheet to make the company's financial statements look better, an action that was facilitated by the accounting firm of Arthur Andersen, which collaborated to inflate Enron's stock price to trick investors. The scheme involved both hiding liabilities and mixing sales with earnings.

When discovered, employees of Arthur Anderson tried to minimize their involvement by shredding critical documents. Such action prompted a Justice Department probe and the filing of criminal charges. Arthur Andersen was convicted of obstructing justice, and the company agreed to surrender its licenses and its right to practice before the SEC.

The Enron case was notable beyond the damage it caused, and that damage was sizeable. Thousands of employees lost their jobs, and thousands of retired Enron employees lost their retirement funds because it was tied to the value of the company's stock. But beyond the financial loss, the Enron scandal signaled a new way of thinking about and interacting with large companies. In part, this was due to the illegal actions of other large corporations that followed the collapse of Enron.

 

Achieving Compliance

Large companies that are concerned with the financial and reputational risks of noncompliance tend to implement company-wide and training systems to ensure compliance with the many rules and regulations they have to adhere to. It is not productive to write e-mails, make announcements, and form policies if employees believe that they still have the ability to make compliance decisions based upon situational variables. Organizations must create internally driven and designed programs that train for compliance as a part of employee organizational tasks. Environmental managements systems (EMS) provide a framework for this and guidelines are provided by ISO 14001 (Michaelson, 2006).

Companies may also commission environmental audits by outside consultants or internal staff. Such audits will include a review of company policies, protocols, documents and records, as ...