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Window Dressing Of Financial Account Is Fraudulent Accounting Essay

According to Wikipedia Online “accounting is the art of communicating financial information about a business entity to users such as shareholders and managers”. The Law of commerce states that business organisation must objectively record the accounts of the business organisation. These laws also state accounts must be clear and represent a fair and true record of the financial affairs of a business; these laws also put in place regulations on distinct ways in which a business organisation can present their accounts. Corporate management have some discretion in influencing
the occurrence, measurement and reporting of these items .In contrast legal means can be adopted by business organisations in order to manipulate their accounts as to paint a different financial picture. This can simply be referred as window dressing.
According to Your Dictionary window dressing is “an adjustment made to a portfolio or financial statement to create a more positive appearance than is actually the case. For example, a manager may decide to provide window dressing to a portfolio by selling stock that has declined in value and replacing it with stock that has increased in value”. By doing this the manager creates the impression of a successful portfolio management. In short, WD is a financial statement manipulation or window dressing where frauds are camouflaged by overstating the income or understating the expenses or understating liabilities and overstating assets. Tutor2u see window dressing as “a form of accounting involving the manipulation of figures to flatter the financial the financial position of the business”. The focus of window dressing:
Liquidity – hiding a deteriorating liquidity position
Profitability – massaging profit figures
The Importance of Window Dressing To get praise from share holders and potential share holders the account book must be properly percentaed and make good to the general public as observed in the case A.B.B (Asia, Bovia and Brown) Incorporated US this construction firm along side with enron presented to the general public for ten years a positive account balance even though they were in red and their shares and stock were the toast of the US before the bubble.
Similarly, window dressing is important to enable the firm to raise present and future capital from the stock market given their positive account balance as in the case of Intercontential bank and oceanic bank respectively in Nigeria who were rated AA by international credit rating companies where as they were in the woods.
Window dressing is similar to asymmetric information in which a party has better information than the other. To sell a hailing company it must be window dressed otherwise no prospective buyer will come.
Also to avoid tax payment a firm may present a poor financial return or position to the general public to technically evade payments of tax. This is achieved by distotinting the balance sheet of the firm.
Advantages of Window Dressing The advantages of window dressing is similar to the importance of window dressing in the sense that the firm is able to achieve what its aiming to achieve without running fowl of the law. The penalty for window dressing is mild except where it is not properly done as in the case of Enron where the owner was jailed for more than 36 years even though Enron has achieved what it wanted to achieve.
Furthermore it cost less to window dress than taking a loan for business expansion simply because it involves with internal running of the firm.
Disadvantages of Window Dressing
Examples of window dressing in Indian Companies: 1. Tata Motors transferred 24% stake in Tata Automotive Components (TACO), a company with revenue of $675 in FY07, to Tata Capital, a group company, and booked a profit of Rs 110 crore in Q1 FY09. Management declined to disclose the valuation methodology. Tata Motors also changed its methodology for calculating provisions for doubtful receivables, which resulted in higher reported Ebitda to the extent of Rs 50.7 crore (10% of Ebitda).
2. TCS, the software major, increased its depreciation policy on computers from two years to four years. As a result, Q1 FY09 PBT was higher by an estimated Rs 50 crore (4% of net profit in 1QFY09). TCS followed cash-flow hedge accounting and till FY08, it used to recognise hedging gains on effective hedges in its revenue line, thus boosting the reported revenue growth and Ebit margin. In FY08, TCS had Rs 421crore from hedging gains, of which, Rs 137 crore was included in the revenue line. However, from Q1 FY09, TCS is expected to report all forex losses/gains below the Ebit line in other income. Thus, the losses it had on its hedge position will no longer be booked in the operating line.
3. Jet Airways, changed its depreciation policy from WDV to SLM, and thereby wrote back Rs 920 crore into its P

The definition, history and importance of environmental auditing

Introduction Environmental auditing is defined by the international chamber of commerce as the systematic examination of the interactions between any business operation and its surroundings. This includes all emissions to air, land, and water; legal constraints; the effects on the neighbouring community, landscape and ecology; and the public’s perception of the operating company in the local area. An environmental audit does not stop at compliance with legislation. Nor is it a ‘green-washing’ public relations exercise. Rather it is a total strategic approach to the organisation’s activities (International chamber of commerce, 1991). All businesses use resources and produce waste; as such they have an effect be it direct or indirect on the environment. Thus, environmental auditing is in place to monitor and regulate an organisations impact on the environment. This element of corporate social responsibility has ‘attracted the most attention in recent years’ (Clarke, 1998) and this is a reflection of the growing importance society place on environmental issues. This essay will introduce environmental auditing in further detail before moving on to discuss the key trends and the key stages which took place in the development of external auditing. Furthermore, Tesco and Shell will be used to highlight how environmental auditing has affected these organisations strategies and business models before finally drawing conclusions as to the future of the issue.
Before discussing the development of environmental auditing since the 1970s, it is first important to clarify what is meant by environmental auditing. The term auditing is one which is used far more widely than just the verification of accounts, and therefore it is important to determine what is meant by auditing in the specific case of environmental auditing (Gray, 2000). An environmental audit report will identify the forms and classes of waste produced by an organisation. This may be completed privately by an external auditor, or may be the result of pressure from activist groups in which such an audit is demanded. Either way, often the result is a self reporting by the organisation detailing their waste disposal and future goals regarding environmental issues.
The objectives of this report are focused on trace the development of environment auditing over last several years. In chapter two, I will analyze the history of environmental auditing, changes, trends and developments. And then chapter three and chapter four will move on to discuss how environmental auditing has affected the practices of two large multinationals: Shell and Tesco. The case studies will cover the adoption process of environmental auditing, how companies have had to change their practices to meet changes in legislation over time, and, a review of any action which has been taken against companies, due to the neglect of environmental practices. Finally, chapter five will synthesise the ideas of this paper to draw conclusions as to the likely direction environmental auditing will take in the future.
CHAPTER TWO
The history of environmental auditing, changes, trends and developments
This essay will now discuss the history of environmental auditing since the 1970s. This period of time has been covered because it contains some of the most prominent events that have been fundamental in the determination of more current trends that can be observed within the last ten years. Although environmental auditing is not a recent phenomenon, and is one which can be traced back to the beginning of the twentieth century, it was in the 1970s in which the situation ‘gained prominence’ (Owen, 2003 p.6) when the clean air act was first legislated. The clean air act can be seen as the birth of environmental awareness, in which the US government took action to reduce air pollution in order to enhance air quality. Businesses in the US were made to comply with the legislation, and this could often involve the implementation of costly preventative measures in order to reduce pollution, especially for those organisations involved in high waste sectors (Hess, 2000). This legislation reflected a growing concern throughout developed nations in the 1970s regarding environmental quality, which was seen at the time as a pressing political concern. Earth day, a momentous event in 1970 acted as a ‘national catharsis’ in which society pushed for change regarding environmental issues. Great pressure was put on manufacturing industries and, increasing media attention was given to those firms which were seen to be having a detrimental effect on the environment (Environmental protection agency, 2010). The clean air act of 1970 was followed by the clean water act in 1972. The development of acts relating to environmental issues was slowly picking up pace which was causing increasing concern to firms, which were largely the only opposition to such acts. Perhaps the most salient development in this period was the event which saw ‘Allied Chemical’ indicted on account of 1094 pollution violations and forced to set up a system which monitored environmental risk (Groves and Pearce, 2005). The move to punish companies for bad environmental practice was a key development in environmental auditing and saw the beginning of a series of fines for those companies failing to comply with safe environmental practices. This is something which has become commonplace over the last ten years with a trend of increasing stringency regarding the governmental measurement of a firms environmental impact and, the appropriate measures of control.
During the 1980s there was an increasing awareness of environmental issues politically, which led to the organisation of a professional auditing team to discuss environmental auditing in 1981. This was the first time in which environmental auditing had been discussed by an accountancy team, and by 1983, firms were already beginning to implement environmental audits. By 1986 the EPA had published an official policy report regarding environmental auditing; this could be seen as a call out to all other firms to follow safe environmental practices. The particular focus on this initial report being, that environmental auditing would help health and safety around the workplace. Meanwhile, in academic literature, the concept of environmental auditing was beginning to receive attention. This led to an increase in academic awareness of the subject which resulted in the conceptualisation and clarification of the topic (Cahill and Kane, 1984). During the last decade, there has been an increasing amount of publications surrounding the topic of environmental auditing, and this has led to a greater understanding of what it constitutes. Furthermore, there have been an increasing number of regulatory bodies ensuring that strict regulations are in place and that firm’s activities are closely monitored (Porter

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