Factors for Accounting in the Business World

✓ Paper Type: Free Assignment	✓ Study Level: University / Undergraduate
✓ Wordcount: 1608 words	✓ Published: 25th May 2020

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Accounting in the Business World

Accounting is a profession that consists of recording financial transactions for a business, person, and organization. Accountants duties are to summarize, analyze, verify, and report these transactions or records to the members and third parties whom are interested. Williams (1992) stated that accounting credentials are the starting point for individuals because it proves to others that he/she has completed their training courses. He also expressed that accounting credentials are important for numerous of reasons such as being recognized by the governments. However, with the improper methods of handling the transactions and untruthful recordings in the books, there will be negative outcomes to come. This paper reveals the importance of accounting credentials, organizations associated with this field, and the WorldCom Scandal that transgressed the norms of accounting.

Importance of Credentials

Professional credentials, such as becoming a CPA, allow the general public and all others to know that the individual has satisfied the education, finished their technical training, and exams that are required to become an accountant. Williams (1992) believed that credentials are important because it is recognized by both the federal and state government letting them know who they are potentially dealing with. Also, it let others know that the accountants duty is to not deal with retail or production, but rather deal with financial matters. According to Louis (2008), “CPA is one of the most respected credentials a person can earn.”

Norms

An accounting norm is when managers, accountants, and students expect organizations to recognize revenues when all the things that needs to be completed to earn credit has been completed and when the consideration in exchange has been received (Sunder, 2005). Members in an organization or business have the right to state their own statements of what the norms are in accounting. Fortunately, these statements will earn respect and acceptance from the members in the financial community. Financial reports are prepared by managers for outside auditors to review. The U.S. Securities and Exchange Commission have regulated this process under securities laws. In Sunder’s opinion, financial members with a conflict of interest have rendered financial reporting unfavorable to the use of norms (Sunder, 2005).

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Organizations for Accountants

There are 5 organizations that are associated with accounting professionals. The first organization is the American Association of Finance and Accounting (AAFA). AAFA supports financial professionals by giving accountants for opportunities to train, look for jobs, and recruit members. The Institute of Internal Auditors is the second organization that focuses on the auditing aspects and makes sure that accountants are trained to have an ethical behavior. Institute of Management Accountants strengthens skills of accountants and provides networking globally. Professional Association of Small Business Accountants guides CPA’s with resources to allow them to assist their clients in an ethical manner. Lastly, Young CPA Network provides learning activities and education for CPA’s (“5 Great Professional Organizations for Accountants,” 2019).

WorldCom Scandal

A case that involved a member of a business transgressing the norms of their profession and causing a problem to their company is the CEO, Bernie Ebbers, of WorldCom. WorldCom was an American telecommunications company that was worth around $180 billion. Ebbers and his financial chief officers such as Scott Sullivan, Bufford Yates, and many more deceived investors and lenders by overstating it’s earning by more than $3.8 billion. The members of the WorldCom Inc. had admitted that they underreported line costs by capitalizing rather than current expenses (Lyke & Jickling, 2002). WorldCom was caught by the suspicions of U.S. Securities and Exchange Commission because while their competitor, AT&T, was losing profit, they continued to make profit (Pulliam & Solomon, 2002).

Short-term and Long-term Impact

Members of a business, person, or organization must ensure that they have the correct accounting transactions or records because doing this are often required to conform the law. If they don’t, like WorldCom Inc., it can result in getting caught by the governmental bodies such as the IRS and SEC. If the problem is unacceptable, prison time is possible. Ebbers were sentenced to 25 years in prison due to his charges of security frauds and false filing with the SEC (Romar & Calkins, 2006). Financial officers who were involved in the accounting tricks were also sentenced to prison, but with a shorter period of time. This led the path of the corporation to financial disaster nearly driving them into bankruptcy.

After the occurrence of the WorldCom scandal, investors developed a destructive sentiment in regards to accounting firms (MacDonald, 2002). Also, the customer’s of WorldCom left in large numbers, which benefited AT&T. The impact of WorldCom is giving better corporate governance in other countries.

New Law

After the financial fraud of WorldCom Inc. and from other companies like Tyco, Enron, and HealthSouth; Sarbanes-Oxley Law was passed by the Congress to restore investor confidence (Green, 2004). Sarbanes-Oxley Law’s goal was to change auditing controls and financial regulations for U.S. public companies (Coates, 2007). This new law was immediate and significant because it required accounting firms to attest management’s assertions and register with the Public Company Accounting Oversight Board (Green, 2004). Sarbanes-Oxley significant impact will continue to change for U.S. companies throughout the world.