Accounting scandals
Accounting scandals are caused by financial misdeeds that are performed by persons in the management of business establishments (Needles, Powers and Crosson 98). Interested persons or oversight agencies unveil the malpractices within organizations. Satyam Company was involved in an accounting scandal in 2009 (Rai par. 1). The business organization specializes in offering IT and back-office accounting products.
It was astonishing that the firm’s founder gave evidence of committing the crime in a letter that he wrote to the board of directors (Rai par. 3). What impacted the corporation and the public most is that, after the malpractice was unearthed, it was made public that the founder of the Indian firm falsely improved revenues by $1.5 billion. Thus, it was known that it was underperforming, but the director aimed at convincing investors that it was performing excellently.
Nominal accounts
On the basis of Jason Henson’s actions, it would be important to note that nominal and cash accounts were affected. Nominal accounts reflect temporary transactions that are made when firms acquire funds and use them. Thus, they could be characterized by sales and purchases. Cash accounts are part of real accounts that reflect intangible things that do not have physical existence in a company (Needles et al. 45).
Nominal accounts would experience a debit because they would be exemplified by removal of money for expenditure. On the other hand, cash accounts would experience a credit because they would be typified by addition of money from the lending bank (Needles et al. 46).
There is an ethical issue in the manner Jason Henson obtains a substantial overdraft from the banking institution. It is noted that Better Days Ahead is a charitable organization that relies on donor funds to operate. Thus, it could have limited the amount that it could obtain as an overdraft.
I disapprove of Jason Henson’s management of the charitable firm. Prudent management requires managers to use excellent approaches with regard to income generation and expenditure. However, the leader in this context shows that he could not care about the extent to which the firm could spend in expanding operations. In fact, he used part of the $10,000 bank overdraft to acquire expensive office furniture.
Alternative approach
From a financial accounting standpoint, the transactions made could have great impacts on reported income for 2009. The $2,000 sale of furniture could imply that the firm made impressive sales, which could improve revenues in a significant manner. The $900 that was owed to workers could mean that the business organization was not in a position to pay its personnel. In fact, the entry could have a negative impact on the income for the year under discussion. Lastly, the $400 prepaid insurance could also have a negative effect on the earnings of the company. Mort Steinbach took the actions so that he could prove to a bank that his business organization was making good sales, but he needed more funds to expand it.
The actions were not ethical because they could amount to accounting scandals, which could attract big penalties. In fact, the transactions were falsified and could not be relied upon to assess the performance of Steinbach & Sons.
The accountant would be advised to refuse to effect the transactions and report the matters to oversight bodies that would take the business owner to a court to answer charges related to accounting malpractices.
An alternative action that would help the situation is to advise Steinbach to stick to ethical ways of doing business. In addition, he could be advised to seek other ways of funding his company other than anticipating a bank loan.
An alternative approach that is not ethical that would help the situation is to advise the accountant to make more false transactions that would improve the earnings of the business establishment.
Works Cited
Needles, Belverd, Marian Powers, and Susan Crosson. Principles of accounting. Boston, MA: Cengage Learning, 2012. Print.
Rai, Saritha, 2014, Despite Dramatic Half-Billion-Dollar Award In Satyam Scandal, ‘India’s Enron,’ It May Be Years Before Investors See A Dime. Web.