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  • Act8 Olcae1

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    Christelle Joson
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    The document is a student essay response discussing who should bear the loss from a fraudulent financial reporting case. The student argues that the management who perpetrated the fraud and the accountants who failed to detect it should bear the loss, as they were responsible for the inaccurate financial reporting that led the company to bankruptcy and stock prices to plummet, negatively impacting stockholders like pension funds and retirees. While the auditors followed standards, the accountants should have caught signs of financial troubles earlier.

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    ACT8 OLCAE1

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    The document is a student essay response discussing who should bear the loss from a fraudulent financial reporting case. The student argues that the management who perpetrated the fraud and the accountants who failed to detect it should bear the loss, as they were responsible for the inaccurate financial reporting that led the company to bankruptcy and stock prices to plummet, negatively impacting stockholders like pension funds and retirees. While the auditors followed standards, the accountants should have caught signs of financial troubles earlier.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    20 views1 page

    Act8 Olcae1

    Uploaded by

    Christelle Joson
    The document is a student essay response discussing who should bear the loss from a fraudulent financial reporting case. The student argues that the management who perpetrated the fraud and the accountants who failed to detect it should bear the loss, as they were responsible for the inaccurate financial reporting that led the company to bankruptcy and stock prices to plummet, negatively impacting stockholders like pension funds and retirees. While the auditors followed standards, the accountants should have caught signs of financial troubles earlier.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    NAME: JOSON, CHRISTELLE MAE G SECTION: OLTA22A009

    STUDENT ID: TA202000170 COURSE: BS ACCOUNTANCY-B

    CHAPTER 8 - ACTIVITY

    ESSAY:

    Direction: Explain the following statements/question in not less than 5 sentences.

    1. A competent auditor has done a conscientious job of conducting an audit, but because of a clever
    fraud by management, a material fraud is included in the financial statement. The fraud, which is an
    overstatement of inventory, took place over several years, and it covered up the fact that the
    company’s financial position was rapidly declining. The fraud was accidentally discovered in the latest
    audit by an unusually capable audit senior, and the SEC was immediately informed. Subsequent
    investigation indicated that the company was actually near bankruptcy, and the value of the stock
    dropped from P260 per share to P10 in less than 1 month. Among the losing stockholders were
    pension funds, university endowment funds, retired couples, and widows. The individuals responsible
    for perpetrating the fraud were also bankrupt. After making an extensive investigation of the audit
    performance in previous years, the SEC was satisfied that the auditor had done a high quality audit
    and had followed generally accepted auditing standards in every respect. The commission concluded
    that it would be unreasonable to expect auditors to uncover this type of fraud.

    Required:

    State your opinion as to who should bear the loss of the fraudulent financial reporting. Include in your
    discussion a list of potential bearers of the loss, and state why you believe they should or should not
    bear the loss.

    I think the person to be blame and the person who will bear the loss is the management because they
    are the one who started the fraud. They must be investigated by the company. Another one is the
    accounting because they are obliged to be fair on the financial report. They are the one who will know
    first if there are something that is wrong in terms of the cash flow of the company. Because of the
    accountant’s negligence the who whole company bear all the problem that the management fraud had
    made.

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