Accounting Scandals Case Study Example | Topics and Well Written Essays - 2000 words

Accounting Scandals - Case Study ExampleRefco became a public society on August 11, 2005 when a large number of shargons were floated to the public to raise 583 million dollars.In October, the Companys financial crisis was made public through an announcement that the CEO, Philip R Bennett had concealed as much as 545 million dollars in bed debts from the Companys investors and auditors by keeping them off the account books, in order to artificially go ballistic earnings and boost up the Companys origin price.(White and OHara 2005D01). This anomaly in the accounts was discovered during a process of internal review which was carried out over the preceding weekend. Refcos bank line prices plunged immediately once the announcement was made, resulting in losses of more than $1 billion in sh atomic number 18holder value, with its bonds also plummeting to insolvency levels.(White and OHara 2005D01).The Company reportedly engaged in a series of circular transactions, whereby an unnamed b usiness entity owned by Mr. Bennett was buying off Refcos bad debts at every quarter, so that they did not in 10d up on Refcos books. The unidentified company owned by Mr. Bennett assumed those debts of third parties which were likely to be difficult or impossible to collect (Teather, 2005). The chairwoman arranged for a Refco subsidiary, Refco chapiter Markets to lend cash to a hedge fund company named Liberty Corner Capital, which in turn lent the money to Refco Group Holdings, which paid off the debt to Refco Inc.(White and OHara 2005D01). In this way, at the end of every quarter when accounting statements became due, debt was temporarily moved off Refcos books and onto Libertys account. Such accounting scandals obtain fears of a liquidity squeeze and market contagion, highlighting the need for tighter regulation and higher levels of disclosure and transparency in hedge funds (The Herald 2005). Accountants and banks are being sued as a part of the shareholder class action sui ts against Refco, because the circular pattern of transactions which occurred regularly at the end of every pecuniary quarter and then unwound after the quarters ended were themselves a warning alarm bell which should have sounded in the minds of auditors and accountants (White and OHara 2005D01). Goldman Sachs, CSFB and other leading investment banks are being sued for negligence in underwriting and advising on Refcos float issue and on its bond issues, which led to the perpetration of accounting fraud.(Walsh, 2005).Refco Capital Markets is at the centre of the regulative investigations, because this was the corporate entity through which Bennett was able to receive loan funds, which were hidden from Company auditors and officers. A commodity funds Company is suing Refco for diverting its assets to an insolvent entity like Refco Capital markets, while senior executives at an Australian bank, Bawag, are also being scrutinized for their role in the scandal, because the bank approve d a loan of 420 million dollars which was alone prior to the accounting manipulation that was taking place.(Fortune, 20065)The Polly Peck ScandalPolly Peck was initially a small clothing company on the London stock exchange which did not demonstrate any remarkable profits, but its fortunes began to change when it came under the management of Asil Nadir, a Turkish businessman, in 1980. Over the next ten years, the Company experienced an unprecedented level of growth. In 1980, it also moved into the fruit packing business through a public share funded acquisition of Uni-Pac, which was a company already owned by Nadir.(Wearing, 2005 41). The move away from clothing into fruit packing represented a risk for the