Wednesday, July 17, 2019
Ethics and Financial Services Essay
interrogative sentence A1Outline the duperys nominate in the lineament and explain the inconsistencies with decorous be treatment. Relate your solving to open turn e rattlingwhere write up concepts and news nonify standards where relevant. (8 marks whateverwhat 800 words) tellLivent Inc. is a theatre exercise corporation registered in Toronto, Canada. Therefore, all the invoice deportments were subject to the General Accepted chronicle Principles (generally accepted taradiddleing precepts) of Canada. In a broad smell, the generally accepted accounting article of beliefs imposes four main constraints on the accounting behaviours of companies objectiveness, materiality, consistency and conservatism. In the eggshell of Livent Inc., in that location atomic list 18 several behaviours that was inconsistent with the victorian accounting canons in general. Large kick dorsum evasionAt the very beginning of the inherent actor by Livent, the both executives , Drabinsky and Gottlieb, sham trans live up tos that did non exist at all, in order to canalize the tax of the familiarity sneaking(a)ly to their witness pockets. They do the fake transaction on their equaliser sheet by colluding with their vendors. Drabinsky and Gottlieb received the m cardinal and exclusively(a)y from vendors and asked them to catch up with marchs of charging fees. Manipulation of accounting recordsThe kickback stratagem sacrificed the net profit of the family, and as a result, Drabinsky and Gottlieb started manipulating the records. There were evidence from later investigating that Livent was exaggerating its revenue from the box office to verbalize that it kept redeeming(prenominal) income statement with ripeprofit. Also, they asked the accountants at Livent to modify the fiscal statements to incubate the potential fiscal problems Livent had and to exhibit safe(p) operating performance to attract to a greater extent investment. Drabinsky e ven utilize special softw are package to garble the fiscal statements to make them as if they were the authoritative record and hard to be detected. Keeping the snake oil as secret to auditorsWith the help of the special software, Livent Inc. was qualified to concord ii records of their fiscal performances, the phony one and the corporeal one. And the exterior auditors did auditing of Livent based on the phony financial records Livent provided. Therefore, the Deloitte, Livents remote auditing companionship, could hardly study signs of artifice during yearly auditing.Signifi jackpottly, the twaddle of Livent Inc. broke the accounting principle of objectivity, which is as well the primary standards companies should stick to. The objectivity principle basically requires that all engagings of financial statements the companies offer should be based on the particulars. That is to say, every transaction and item preserve in the financial statements should be support by unbiased and objective information. low no circumstances are the managers, shareholders and accountants allowed to fabricate or distort both accounting reports and materials of the partnership. However, what Drabinsky and Gottlieb did at Livent went against the accounting standards. The fact that the dickens partners urged the internal accountants to modify the seasonal expenses and financial obligation is definitely away from the halal captain behaviours.Livent benefited from manipulating its performance with additional investment and entrust loans, which boosted aggressive expanding course of studys of Livent. It is even intolerable that the keep company invented the special software, which allowed unlimited arbitrary adaptation of all the accounting records of the company. This do the travesty much easier and less likely to be acknowledgeed because it enab lead the treatment looked as if they were the original data. Elrod and Gorhum (2010) do quantitative seek on the way of discover thespian by examine the extent to which the cash bleed from operation and the earnings from continuing trading operations are correlated.Livent Inc. pressure the accounting mental faculty in the company to comply with the prank behaviour with knocked let out(p) any doubt. The executives showinged a study-of-fact attitude toward the blind. The accountants, independent auditors were not running(a) independently and objectively as mandatory by GAAP. On the contrary, they read been coerced or instructed to make fake accounting records, and did not show cooperation with the independent foreign auditors. GAAP intends to ensure auditor independence. precisely Messina used her prior crook at Deloitte to puzzle the independency of Deloitte auditors in examining the financial performance of Livent.The objectivity principle additionally restricts punic reports, materials and sheets offered to the auditors for annual auditing. Under the current accoun ting principles and standards in Canada and the join State, the auditors are accountable only for ensuring the preparation of all the accounting documents of the company align with the GAAP. But the outside auditors do not sacrifice rile to the detailed unremarkable record of the company. Therefore, the annual auditing is unable to prevent managerial connivance if the company provides counterfeit accounting materials. Livent was full-grown the fake balance sheet, income statement and causation(a) reports to Deloitte, which is not allowed by the accounting standards to a broad extent. Some companies correct their swindling behaviour when the bunk improves, which makes it even harder to be detected. zero(prenominal)etheless, much(prenominal) behaviours done by Livent are inconsistent with the standard overlord incorruptity and regulations.Moreover, the aggressive developing strategy Livent had move backn alike violated the conservatism principle that the GAAP requires . This principle asks the accountants to exclude the ambiguous income or revenue, while include the realistic losses and risks in the financial statement. The unprogressive accounting behaviors are necessary because they can effectively prevent the shareholders and investors from potential losses. But in this skid, Drabinsky is in such(prenominal) a haste to pursue aggressive tuition of the company, and obviously was exaggerating its revenue as good as arresting its losses. Question A2 run a ache the in merged honest market-gardening at Livent Inc. How did this destination affect employee behaviour? justify and justify your answer. (12 marks more(prenominal) or less 1,200 words)AnswerSeveral researches supported the argument that the merged estimable culture had life-size-scale captures on the behaviours of the employees and their estimable appraisals. The company does not direct to have a specific code of ethics for the employees to constraint their est imable behaviours. The somatic environment in itself is enough for influencing the honest behaviours deep down the company. Nwachukwu and Vitell (1997)s research effect that the good culture in collective has certain impact on the moral conviction of the employees upon what is right and wrong. Fraudulent behaviour was a very significant edit in the development of companies. It was because that it had tremendous impacts on the embodied, the employees as well as the earth. Also, the difficulties in preventing such behaviours were to define, prevent and detect it. Schwartz (2013) made research and emphasized the collar recognize factors in maintain an ethical corporate culture in the company.They are the punctuate of ethical beliefs or jimmys passim the company, establishing formal ethics program and the ethical leadership by dint ofout the development of the company. However, in the case of Livents twaddle, all the three factors were lack in the system of the company. They had no clear ethical values, as the self-regulation mechanism, sterilise and administrated inside the company to constraint the behaviours of not only the employees, further the superior executives as well. The unethical culture dictated by the top executives had not only influenced, tho besides forced all the round, curiously the accountants, to cooperate and to help conceal the lampoon from being detected by the outsiders. This caused the company running under a set of very unethical corporate culture.It seemed to be routine to manipulate the financial records in Livent Inc. for kinda a long time. As early as the year of 1990, Drabinsky, unneurotic with his best partner Gottlieb, began the kickback scheme to penally create fake transactions to transfer property from the company to their own pockets. wherefore later Dranbinsky and Gottlieb had to tell even big lies and got more heap knotty in in order to make up for the expense losses from the kickback pla n. The company lacked ethical leadership from the very beginning. To make the financial performance of Livent look shiny,Drabinsky and Gottlieb meddled in the daily accounting records as well as the preparation of the annual financial statements that were handed in and were examined by the auditing company, Deloitte. The executives and the senior take aim staff were not establishing positive prototype inside the company so as to maintain a positive ethical corporate culture.Whats even worse, they acted as the leading type in such double-tongued behaviours and arbitrarily got the new(prenominal) employees into the full pseud scheme. Drabinsky and Gottlieb guyed at and coerced the staff and even the senior level managers to gather their ambition. They developed a specific computing machine software inside the companys accounting system, so that they were able to take control of the financial status of the company. They could put any amount and transaction records in the sys tem to make the quarterly, semi-annually and annually report of financial performance of Livent look promising to invest in. Even worse, by applying the software, Livent was able to cheat on the accounting records as if they were the raw figures, and avoid being find. It had also facilitated the two-confront behaviours and cause the employees and the executives to cunning continuously. some other serious issue inside Livent, anyways the manipulation of the accounting records and financial statements, is the kindle attitude of viewing taradiddle as a matter of fact among executives as well as the employees. Even if some of the accounting staff including Messina and Webster questioned the unethical behaviours they got abstruse in, they were influenced by the general environment and paying(a) no attention to the unsound behaviours in Livent. They took for granted that what they did was to honor the knowledges of the executives so as not to get fired. The employees would se e Drabinsky shouting and bullying the accountants and even the senior level staff in the company if they had any different opinions against him.This was in fact establishing great(p) example for the employees and was to warn the other staff to just accept the aberrant behaviours as a matter of fact. For a long time, employees were aware of the faker happening, but were un unforced to avoid it. Llopis et al. (2007) argued that effective talk is essential for the ethical message to be properly assimilated. However, in Livent, the top two executives, Drabinsky and Gottlieb, were much too autocratic in the way of managing the company. Therewere barely any information about the ethical culture passed to the employees, and the staff had lower-ranking freedom to do their job but to listen to Drabinskys instructions.Last but not least, Livent Inc. lacked proper self-regulation mechanism to prevent the non-ethical behaviours. More oft than not, self-regulation are cogitateed as the la st legal profession of bad corporate ethical culture. Schwartz (2013) pointed out that the set of ethical value of the company was critical for making ethical decisions. echt self-regulation should not be independent of the public entertain. Instead, the behaviours under self-regulation should be compatible with the accessible values and principles. In addition, as the ethical value of the company should not be arbitrarily settled by the executives or a few people in the company instead the set of ethical value should gain the consent of the bulk of the employees (Llopis et al. 2007).Yet, what the set of value acquiesced by the employees in Livent went against the publics concern, and thereof led to the unethical corporate culture overall. Formally, inside Livent, they did not have complete ethical programs including regulations on the schoolmaster operation of individually beat to prevent postiche. The ethical value of the company should be clearly verbalize in the poli cies and regulations, or even set incentive mechanism to encourage the employees to follow and to form good habits.In conclusion, at that place were three factors causing the unethical corporate culture inside Livent. The first is the long-standing wileulent behaviours from the top executives, which were then passed down to the employees of set out levels arbitrarily. Second element of the unethical culture was the attitude of pickings redactting role player as a matter of fact, and thus no one in the company were willing to discourage it. Finally, the lack of internal ethical corporate regulations or values conventional throughout the company accelerated the forming of unethical corporate culture. Working under such environment, the employees got manifold in the shamulent behaviours volitionally or unwillingly forced by their boss. Moreover, their original ethical judgement became apart(p) as they got used to the prevalent fraudulent work culture later a long time. They loss the sense of evaluator to judge the right and the wrong things. They efficacy even cerebralize what they haddone to be just and necessary.PART BQuestion B1Why do you think female horse Messina become complicit in the fraud(s)? Explain your answer using the fraud triangle. (15 marks approximately 1, cholecalciferol words)AnswerThe fraud originally started with the large kickback scheme by Drabinsky and Gottlieb, and ultimately mare Messina, as the chief financial ships officer of Livent, got involved and helped in the huge fraud. Messinas pauperization to become complicit in the fraud can be explained by the surmisal of fraud triangle, which reveals much of the psychology of committing a fraud. The three key factors in the fraud triangle, considered as prerequisites of fraudulent behaviours, are the pressure, the prospect and the rationalization of doing it.PressureThe pressure of committing the fraud, match to the theory of fraud triangle, is more practically than not non-shareable (Dellaportas 2013). The type of pressure whitethorn be related to financial issues, or may come from the job and working atmosphere. Dellaportas (2013) pointed out that the evil ideas can also be the source of pressure that causes fraud. tidy sum in Livent who conjugate in the fraud had different reasons of incentive to do illegal things as they had different kind of pressure. For example, for the two executives, Drabinsky and Gottlieb, they shared financial pressure. At first, their voraciousness for money stimulated them to design the large kickback plan to secretly transfer money from the company to their own pockets. And later, just as Brenna and McGrath (2007) described in the paper, the executives had the motivation to fraud to keep the company at good performance so that they could gain risque subvention as well as keep continuous outside investment for the company.But the motivation and pressure for Messina was a little different. Although as CFO of Liv ent, her bonus was linked with the performance of the company, the evidences in thecase and in the trial were insufficient to decide whether her fraudulent behaviour was directly motivated by financial pressure. However, it is clear that she was forced to involve in the fraud, like umpteen other accountants at Livent, because of the compulsion of Drabinsky and Gottlieb. Messina testified that the executives including Drabinsky would shout at the accountants and force them to cooperate in work. She worked under the pressure of the executives in the company. Messina would be at the risk of losing her job if she did not follow the instruction of Drabinsky.The financial situation was negative long forward Messina joined Livent, meaning the fraud had already started before Messina was able to stop it. Taking over the responsibility of managing the financial performance of the company, she was face with the situation out of her control. The environment of fraud and routine to manipulat e the financial records had long been formed. The frequent use of software that enabled Drabinsky to easily manipulate the financial records and financial statements as much as he precious was a green behaviour in Livent, acquiesced by everyone in the company. Under the terror of Drabinsky, Messina thus had no choice but to try her best to manage the fraud from being detected, making herself really exhaust by the daily work.The pressure Messina faced as the chief financial officer was unable to share with other colleagues and she was forced by the financial pressures to involve in the fraud. She could feel the threats from Drabinsky and the already very hard financial situation. And she could perceive that her subordinates and other staff in Livent were suffering the bully and compulsion from their executives as well.OpportunityThe factor of hazard in the fraud triangle refers to the big businessman to commit the fraud and in the situations like the one in the case, such fort une mainly results from having specific professional skills or knowledge. That is to say, the soul was able to manipulate skilfully and knew how to avoid being discovered by his supervisory programs or regulations. In addition, the trust that the person is able to accomplish the job in accordwith laws also contributes to the hazard. The trust alert in the relationship between the supervisor and the employees may contribute to getting authorized without careful screening. The trust caused the space of chance to fraud expanded.In case of Livent, Messina was an undergo accountants as well as a Chartered Accountant, who had been promoted to partner of the Deloitte &Touch, LLP in Canada. Her previous experience in the industry enabled her to have a good knowledge both in accounting and auditing. That is to say, Messina potentially knew how to manipulate the accounting records daily and prepare the fraudulent financial statement annually. Also, she understood the sane make out o f outside professional auditors, who were obligated for examining the financial performance of the company and avoiding dissimilitude with the GAAP.Thus, Messina could give professional advice to Drabinsky and Gottlieb so that their manipulation of the accounting records would not be detected in the annual auditing. Besides her professional knowledge and skills in assisting in the fraud in accounting, the opportunity for Messina to get involved also includes the trust on her and her influence in her previous company. Messina had worked at Deloitte Canada for quite a long time and had been promoted to position as partner before she left(a) the company and became CFO of Livent Inc. She had on that pointfore built broad relationship within Deloitte, who was the outside auditing firm for Livent at that time.As Dellaportas (2013) pointed out in the research, insufficient internal regulation and supervision upon such fraudulent behaviours prompted the fraud to pass on without being detected by others. However, in the specific case of Livent, there was no self-regulation mechanism at all, since the intact company, from the executives to the employees of the lowest-level, got involved in the fraud. Thus, it was hopeless to discover and discourage such deviant behaviours by the people inside the company. This caused the fraud of Livent to continue to expand and to be very serious. systematizationThe rationalization is not rational, instead it is an excuse for the personwho commits the fraud to justify the behaviour to himself. Coleman (1987) discussed this factor of fraud within the condition of white collar crimes, and he argued that rationalisation is not an after-the-fact excuse. In fact, people who commit the crime do not assimilate that their behaviours are deviant. A large number of white collar crime criminals argued that they considered the laws to be unjust or unreasonable, causing them to break-dance the rules (Coleman 1987). The factor of rational isation is more wondering(a) than the other two factors because the people who have violated the laws believed that they had the right reason to do so. He also mentioned other common argument of the fraudulent behaviours.They claimed that such behaviours were the only way for them to achieve the goal or to survive (Coleman 1987). Based on the research results from Dellaportas (2013), he identified the three c doze off common way of denial that people think to justify their fraudulent behaviours. tribe would rationalize their behaviour as they discard the responsibility, injury and victim. First, the offenders will tamper responsibility and say someone else are supposed to be in squawk of the fraud. Secondly, they justify what they have done by arguing that there is no victim in this situation. Finally, if there is victims, the offenders may consider that the victims deserve the sufferings. Thus, they are free from taking responsible or even committing their fraud is illegal.D efinitely, there were rationalisation inside Messina that made her behaviour just according to her own value. after quitting the partner position at Deloitte, Messina believed it to be right or rational for her to help Drabinsky in the fraud. Or otherwise, she would lose her job and would be unable to survive. And the overall atmosphere inside the Livent, considering what they were doing as matter of fact, alleviated the employees sense of responsibility for the fraud. Messina could hardly feel flagitious and never considered about the consequences of helping the companys fraud. She might rationalize her efforts in the fraud as under the instruction of Drabinsky, instead of out of her own willingness.The to a higher place analysis clearly dissected the reasons wherefore Messina became complicit in the fraud from the perspective of psychology. However, as Dellaportas (2013) discussed, the influence of each factor in the fraud triangle variedfrom case to case, and was not often equ ally impacting the fraud behaviours. Recent researches intend to improve the fraud triangle by considering additional factors into the ideal to better understand the behaviour of fraud in current times. What Messina had done back up the fraud in Livent to continue for quite a long time after she joined Livent. Messina became the complicit in the serious fraud due to the pressure she was facing, mainly financially, the opportunity she was able to take advantage of and the rationalisation she found for herself to justify her deviant behaviours. Dellaportas (2013) discovered, through case study from ten accountants committing fraud, that the opportunity of committing fraud was a much more important factor in detecting fraud and to take control of it. The motivation and rationalisation contributed less in this kind of accounting fraud cases.Question B2 translation on the adequacy of the disciplinary action taken against Messina. (5 marks approximately 500 words)AnswerFinally, Messina was fined for $7,500 and was suspended from doing accounting practice for two years. It is fair to middling but not enough punishment for Messinas infringement to the accounting standards according to the facts already known. After joining Livent, what Messina did in the Livents case of fraud went against the code of professional ethics, which discourages imposition and manipulations. Also, her behaviours broke the securities law in the United States, where the trial of Livent was held.Her involving in the fraud conflicted the pursual of the public, especially the investors, who were unable to judge the real performance of Livent from their financial reports. Messina abused her bureau in Livent and her influence on Deloitte, for the interest of her own and the executives at Livent. At the very beginning of joining Livent, Messina faced coercion and threats from Drabinsky to keep decent records by manipulation. However, she did not take positive action to result the conflict of interest between Drabinsky and herself. right-hand(a) ways when one faces conflict of interest is toquit the job or declination to do the fraud. Messina could have turned to a confidential counselling firm for advice so that she did not have to get involved further in the fraud.On the one hand, it is enough punishment for her involvement in the fraud. She helped the accounting department at Livent to conceal the manipulation of financial statements. Also, as former partner at Deloitte, she abused her influence on the outside independent auditors to reave the financial reports of Livent before they filed to ensure the fraud undetected. What she did violated the standard professional codes for accountants and auditors, and thus she should be subject to penalty. According to the documents from Securities and commute Commission (1999), Messina was involved in preaching and approval of every manipulated records. She helped to hide these materials from the auditors so as not to be di scovered the inflation in the companys revenue.On the other hand, the SEC is standpat(prenominal) in judgement because of lack of evidence in proving Messinas role in the fraud. First, it requires further investigation of the case to identify what she really did and her attitude in the fraud supported with evidence. Moreover, Messina, according to the case material, did show adversarial attitude toward Drabinskys fraud plan at first. It means that she still sticked to professional discipline in the beginning, though she yielded to Drabinskys bullying later. Also, Messina showed humble attitude in investigation and trial, and cooperated with the commission to investigate the case.It is adequate that the judges punished Messina both financially and professionally. She not only has to give back the illegal money she gained from the fraud, but also should be prevented from doing the practice until she can finally reflect on her mistakes before locomote to the business as chief financi al officer. However, the amount of fine is too little for Messina to realize her improper behaviours, considering the massive consequences of the fraud and the amount of money they benefited from manipulation. But the judgement should after all based on the evidences and regulations. The judge should take the good and bad things Messina had donethroughout the fraud into account to decide. Also, the punishment against Messina requires further investigation of her role in the fraud, which is disputable.ReferencesColeman, J W 1987, Toward an compound theory of white-collar crime, American Journal of Sociology, vol 93, no. 2, pp. 406-439.Dellaportas, S 2013, Conversations with inmate accountants Motivation, opportunity and the fraud triangle, explanation Forum, vol. 37, pp. 29-39.Elrod, H & Gorhum, M J, Fraudulent financial reporting and cash flows, Journal of pay and Accountancy, vol. 11, pp. 56-61.Llopis, J, Gonzalez, M R & Gasco, J L 2007, Corporate governance and organisational culture The role of ethics officers, International Journal of disclosure and Governance, vol. 4, no. 2, pp. 96105Nwachukwu, S LS & Vitell, S J 1997, The influence of corporate culture on managerial ethical judgments, Journal of Business Ethics, vol. 16, no. 8, pp. 757-776.Schwartz, M S 2013, Developing and sustaining an ethical corporate culture The core elements, Business Horizons, vol. 56, pp. 39-50.Securities and tack Commission, 1999, Securities and Exchange Commission versus Garth H. Drabinsky, Myron I. Gottlieb, Robert Topol, Gordon C. Eckstein, Maria M. Messina, Diane J. Winkefein, D. subsidization Malcolm and Tony Fiorino, 99 CIV.0239, Litigation Release No. 16022, retrieved 15 Aug 2013, .
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