Accounting Scandals

Accounting Scandals

A dynamic and thriving financial service sector is essential to the achievement of any contemporary economy. Investment firms, insurance companies, banks, financial markets, and other related organizations are vital sectors of the economic infrastructure of any nation. These firms drive the economy by converting savings into valuable investments, along with providing the approaches for effective handling of potential dangers. Notably, in the United Kingdom (UK), monetary services are essential since the nation harbors top-ranking financial centers in the world, with the sector being among the leading exporters and largest employers. There are established rules that govern this business, and any firm that violates them enters the records of an accounting scandal. Company Act, stock exchange regulations, the International Accounting Standards Board (IASB), and Accounting Standards Board (ASB) will be used for a proper understanding of this aspect. Also, examples of financial firms in the UK that have accounting scandals, will be effective in understanding the importance of compliance, along with the consequences of non-adherence.

First, the Company Act needs the directors of firms within the UK to come up with their accounts for each financial year, hence a way of portraying a fair and authentic perspective. This regulation requires the preparation of two types of accounts; Companies Act and IAS accounts.

The Companies Act accounts are made with the disclosure and accounting requirements of the rules of the firm, along with guidelines of Financial Reporting Council (FRC) called Financial Reporting Standards (FRSs) (Pijper, 2016, 5). Consequently, IAS accounts are made concerning the adopted rules of the European Union on the International Accounting Standards Board (IASB). The statement implies that this type of account should be prepared with strict adherence to the directives of the International Financial Reporting Standards (IFRS).

Additionally, stock exchange regulations and critical financial reporting requirements were developed so that major market firms agree with the most treasured set of entrance and disclosure standards, which is a way of showing business quality to potential investors. This law is vital since it maintains the quality of European capital and builds the investor’s confidence. Besides, the considerations and requirements for a firm change due to the influence of various market segments, such as premium, standard, specialist Fund, and High Growth (Pilbeam, 2018, 4). All four market segments need to follow the guidelines of the FCA handbook and the London Stock Exchange’s Admission and Disclosure. The obligations of these requirements involve the timely release of financial outcomes and reporting to all investors any aspect that might impact the share price at a similar time.

IASB is responsible for the issuance of International Financial Reporting Standards (IFRS), which ensures that financial statements are comparable, transparent, and consistent. These financial requirements stipulate how accounts must be maintained and reported by firms where they need to define the transaction types and other monetary effects. Consequently, IFRS guidelines were developed to come up with similar accounting language to ensure that financial institutions are reliable and consistent from one company to another through professional analyses and decisions (Maroun & Zijl, 2016, 230). The major strength of IASB is that it fosters growth, trust, and prolonged financial stability in the economy of the world. According to this claim, people are likely to invest their money into transparent business companies.

Moreover, there are various standard IFRS requirements related to accounting undertakings, including the reporting of a balance sheet or financial position statement. Also, these regulations influence comprehensive income, which may either be informed of one statement or divided into loss and profit, along with others, such as equipment and property. Besides, IFRS requirements relate to the changes in equity statement that records the profit changes of a particular financial period or earning of a company. Consequently, the statement of cash flow is regulated by the standards of IFRS. This report narrows down the financial transactions of a firm in a given duration, dividing cash flow into financing, investing, and operations (Maroun & Zijl, 2016, 237). The additional requirement needs an organization to present a summary of its accounting rules. Similarly, a parent firm is required to provide for its subsidiaries a separate account reports.

ASB takes part in standard development, recording, and communicating financial accounting and reporting through publications and press releases. ASB takes part in the IFRS development through direct team contribution and communication of its proposals or opinions through EFRAG, whose views are helpful within European regions (Biondi, 2016, 2). Besides, ASB merges the UK accounting requirements with IFRS, thus improving the needed standards (Biondi, 2016, 3). The standards of this board improve financial communication between investors and companies, including the creation and implementation of OFR.

Besides, breaching these requirements leads to the development of accounting scandals in the country since they hold an essential place within the financial market. Some accounting scandals have been reported, which have seen the responsible firms on severe penalties. The first breach was connected to the Lloyds Banking Group in 2014, where it adjusted the offered rate by London interbank for the Japanese currency (Tchetvertakov, 2015, 2). Also, the bank was reported to adjust the American dollar and British pound rates to manipulate the financial market. The major consequence of the former malpractice was a fine of £218 million. Also, in 2012, the Royal Bank of Scotland Group (RBS Group) breached the accounting standards of ABS since it prevented individuals from accessing their accounts due to computer glitch. This violation made the firm to be subjected to a fine of £56 million and used a lot of ????? to eliminate the problem (Tchetvertakov, 2015, 2). Besides, Tesco Bank engaged in breaching financial reporting requirements in 2014 related to the late writing of profits in their books and miss-selling of insurance policies CITE. The consequence of this action was a fine of over £382 million.

Various benefits result from compliance with all the stock market Acts on financial reporting requirements. First, compliance with the established rules is a technique to evade criminal charges. No firm may desire to face criminal charges due to non-adherence to business laws. Most of the companies operating in the UK have put up proper management and kit relating to financial exchange requirements to remain on the safer side of the law (Slack and Brandon-Jones, 2018, 6). Secondly, compliance plays a crucial role in creating a positive reputation, which helps to attract more customers. The moment the organization begins encountering court cases, it negatively affects their public image, thus making potential investors to lack trust, which lowers their sales.

The increased efforts that such companies make to ensure compliance with these business Acts are to build customer trust and maintain a positive reputation. This benefit is also tailored to the evaluation that compliance ensures that business gets advertisers, sponsors, and government requirements. Financial firms that satisfy the regulatory business compliance of the United Kingdom are easily signed whenever needed. Moreover, compliance with financial regulation in this country is an assurance of higher productivity in the organization. The statement means that adherence to the financial requirements is a determinant of a positive workplace. Different human resources, therefore, prefer to work in an environment that assures them safe business outcomes.

On the other hand, the major consequence of non-compliance is the penalization of a huge sum of money to act as an example so that a similar case may not be reported. Also, non-compliance to the standards of financial requirement violates the qualitative financial features, such as faithful representation, comparability, timeliness, relevance, and verifiability. Firms that do not conform to the established Acts reduces the efficiency of the financial reporting content (Maynard, 2017, 16). This consequence will, in turn, limit successful decision making, thus lowering business returns.  According to this statement, the inability to unveil financial reporting information will negatively influence possible stakeholders and capital providers in making credit, investment, and allocation of other useful resources, which reduces the work efficiency.

In conclusion, accounting scandals in the UK emanates from breaching of various financial regulations, such as Company Act, stock exchange regulations, IASB, and ASB. All financial centers must adhere to such laws to avoid expensive penalization. However, some recommendations concerning this topic will involve; the UK should come up with financial regulations that address the broader global challenges. The agile framework should be adopted to facilitate far-sighted and creative techniques to policy development that will favor the financial sector in solving the biggest policy problems of the society; for instance, the financial service sector should be made in a way that will also address pollution of the environment by such firms. Also, regulations should be used as a way of creating new relationships through financial services. In the current economy, the international trade of the UK is rapidly changing, along with anticipated growth as a result of the developing market. This situation means that a financial regulatory approach is required to reinforce cooperation and the creation of new trading relationships with those companies that have once reported a case of an accounting scandal.

 

References

Biondi, Y., 2016. The HM’Treasure’s Island’: A Theoretical Analysis of Central Government          Accounting Standards in the UK. Accounting in Europe, pp.2-3.

Maroun, W., and Van Zijl, W., 2016. Isomorphism and resistance in implementing IFRS 10 and    IFRS 12. The British Accounting Review, 48(2), pp.220-239.

Maynard, J., 2017. Financial accounting, reporting, and analysis. Oxford University Press.

Pijper, T., 2016. Creative accounting: The effectiveness of financial reporting in the UK.      Springer.

Pilbeam, K., 2018. Finance & financial markets. Macmillan International Higher Education.

Slack, N., and Brandon-Jones, A., 2018. Operations and process management: principles and       practice for strategic impact. Pearson UK.

Tchetvertakov, G., 2015. UK Bank & Scandals: A Match Made in Heaven. Money Transfer           Comparison Magazine. https://magazine.moneytransfercomparison.com/uk-banks-          overview/