Litigation, Censures, and Fines Essay Example | Topics and Well Written Essays - 750 words

Litigation, Censures, and Fines - Essay Example In an argument by Mills (2003), ethical responsibilities in accounting cannot be assured without the implementation of litigations, censures and fines. This ensures that organizations and auditors are responsible when handling the accounts of the organization. Conan, Chad & Mark (2011) also point out that minus litigations, censures and fines investors and creditors would be exposed to greater risks involved in fraud cases created by management teams and auditors. This paper will analyze the possible causes at which legislations, fines and censures can be imposed on an organization. The analysis will be done by reviewing the case of Phar-Mor case of 1992. In 1992, the United States saw the closure of one of the most promising retail outlets in the country. Phar-Mor was cited to be the next Wal-Mart as it recorded great numbers in its sales. In an argument by Conan, Chad & Mark (2011) Phar-Mor had a great future in the United States market if only its accounts recordings were legit. T he organization had contracted Coopers & Lybrand as their auditors. In the Phar-Mor case the top management team confessed to financial statement fraud after creditors and investors in the organization filled cases challenging the legibility of their financial statements after a massive loss was recorded. ... ary issue on the case against Coopers and Lybrand was under the crux that they recklessly made confirmation and representations of financial statements without confirming if they were true or false. According to Conan, Chad & Mark (2011) this gives the plaintiffs the opportunity to file a strong case under the statutory and common law. In terms of litigation and fines, both Coopers & Lybrand and the mangers of Phar-Mor received hefty fines. Coopers & Lybrand had to pay claims to creditors and investors worth more that $1 billion. Phar-Mor mangers collectively received a fine of 41 million as two of its mangers received prison sentences. The $ 500 million fraud however, led to bankruptcy of Phar-Mor leading to its closure. Numerous internal controls and accounting principles were breached in this particular incident. In an argument by Conan, Chad & Mark (2011), it is the duty of the management team to provide accurate representation of financial statements to investors and creditors. The breach of this duty is liable to fines and litigation on the organization. Providing false financial statements to investors is punishable by labor laws in the United States. In this situation, it is the duty of the auditing company to ensure financial representations are accurate and reflect the real financial situation in the organization (Conan, Chad & Mark, 2011). Failure to this, an auditing company is liable and should be fines and pay up all claims by plaintiffs in terms of incurred loss (Hoffman, 1996). The approval of these accounting issues were based on the breach and disregard of leadership and accounting ethics. Hoffman (1996) points out that any organization that depends on investors and creditors for funds has to ensure clarity, accuracy and transparency of their