1 About this book
Background and focus of the failures in this book This book is about financial scandals and failures. Financial or accounting scandals are usually business scandals arising from intentional manipulation of the financial statements. In this book we concentrate on misdeeds by companies and their management. The Competition and Markets Authority (CAM) and Kingman report were published post-publication. Reactions to the CMA on the audit market and the Kingman report on the replacement of the FRC can be found in the online companion volume www.fin-rep.org. The CMA only considered what we regard as ineffective solutions. The Kingman Review was, in our opinion, far more effective, scrapping the Financial Reporting Council (FRC) in favour of the Audit, Reporting and Governance Authority (ARGA) with statutory powers making it a stronger regulator with harsher penalties and the ability to investigate all company directors. ARGA will also be able to make changes to accounts, have a wider set of sanctions and can publish reports into a company’s conduct and management. The Government has said it would implement the Review.1 The cases we deal with concentrate on more recent ones and involve one of two main symptoms: 1 Misappropriation of assets (possibly theft) and then hiding the results in the financial reports; 2 Intentional manipulation of accounts by management to improve financial reports and the annual reports. Who is involved in preparing financial reports?
The external auditors (referred to as auditors here) are the main external check and balance for all companies over a certain size including both private and non-listed organizations. The Big Four accounting firms (PwC,
