The Unprofessional Side of Accounting: Cooking the Books

Abstract

This research examines how companies misstate revenues, whether that can be ethical in certain situations, and which laws have been put in place to prevent or limit companies from committing fraud. The term “cooking books” in business refers to when companies make up or manipulate areas of their financial statements to make their numbers stand out more. This research shines light on how serious this issue really is, and what such actions does to not only the company, but those in and around it. How and why do companies commit fraud? How does government regulate and proactively stop fraud from occurring? What has happened to companies in the past that have cooked their books? To answer these research questions, information was collected pertaining to how companies cook their books and why they do it, as well as research different laws that have governed and improved fair and appropriate financial reporting. This list of laws will be at the federal level and consists of looking at the Sarbanes-Oxley Act and its impact on how fraud has been limited and disallowed. Additionally, this research analyzes Enron, Tesco, and Wells Fargo, and their run-ins with fraudulent behaviors. Through looking at their own respective situations, each company’s specific actions they took to make or consciously go about committing fraud will be examined, as well an examination of their financial statements to give indications on how their fraudulent behaviors subsequently impacted the company from an investor’s point of view. Fraud occurs every day in the business world, and it is something that should not be taken lightly. This has been an issue for decades, but is finally slowing thanks to a closer and more restrictive look what has been done in the past and what can be done in the future to make a level playing field.