What We Can Learn from Three Accounting Debacles

The Enron and Arthur Andersen scandal in 2001 led to the biggest accounting debacle in recent history. The collapse of Enron, though scandalous, holds unique lessons for today’s students and sheds light on how important it is for every company to maintain good accounting practices. As time passes, more debacles arise that perpetuate this lesson. Two recent scandals highlight that there is still much to be learned and applied in the corporate world in terms of accounting best practices.

Hewlett-Packard and Autonomy Debacle

In 2013, tech giant Hewlett-Packard (HP) took an $8.8 billion hit thanks to its purchase of British tech firm Autonomy (as reported by ZDnet). In 2011, HP purchased Autonomy to expand its software division for $11.1 billion. HP then discovered that Autonomy had been propping up its numbers with hardware sales. HP claimed it had been a victim of fraud, citing misrepresentation by the acquired firm. This forced Marc Levine, principal accounting officer and senior vice president of HP since 1988, to resign. The accounting lesson to learn here is that due diligence and closer attention to discrepancies could potentially have prevented the brand image and financial damage caused to Hewlett Packard by this scandal.

Toshiba Accounting Scandal

In 2015, an investigator uncovered that Toshiba overstated its profits by $1.2 billion between 2008 and 2014, according to the Wall Street Journal. Furthermore, inventory was improperly accounted for. Two CEOs were ultimately responsible: they were accused of putting pressure on employees to make earnings looks better to investors after the 2008 recession. Also according to the Wall Street Journal, hefty fines of $60 million were imposed on Toshiba — the largest fines imposed on a Japanese company. This ultimately led to the resignations of Toshiba’s former CEOs. This could potentially have been avoided if speaking up about problems were a larger part of the company’s culture, and if accountants in the company were not subject to the immense pressure placed on them by company leadership. Perhaps a separation between the C-Suite and the accounting department would have been effective.

Why Accounting is so Important for Companies

These two high-profile debacles show the increasing need for transparency and proper accounting practices in a modern world. Both of these incidents involved accounting mismanagement directed at satisfying or impressing investors and could have been avoided.

The need for good, educated and ethical accountants at companies of all sizes will never change. To learn more about this ever-growing field, visit Maryville University online.


CNN.com, Enron Fast Facts

ZDnet, HP accounting chief resigns following Autonomy debacle

Wall Street Journal, 5 Things To Know About Toshiba’s Accounting Scandal

Wall Street Journal, Toshiba Accounting Scandal Draws Record Fine From Regulators

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