Overview of the Accounting Scandal in SIG Group
Discuss about the Accounting Ethics of SIG Group.
According to the daily mail online newspaper of Monday, May 7th, 2018 https://www.dailymail.co.uk/wires/pa/article-5481273/SIG-workers-leave-business-following-accounting-scandal.html. The article is titled SIG workers leave business following an accounting scandal. The article identifies the issue of accounting addressing the following theories of accounting. The article is about the possibility of many employees quitting the business after the disciplinary probe lined to the irregularities in accounting profits’ misstatement. The SIG group invited auditors drawn from both KMPG and Deloitte following the identification of issues at the firm’s UK insulation and interior enterprise called SIG Distribution.
The revelation triggered a discovery of “historical profit over-statement” for the financial year that ended 2016 December and the previous years. SIG then vowed to effect various changes despite the inability of KMPG to find any further cause for concern. The SIG Group subsequently implemented various priority controls recommendations linked to cash and rebates. This followed a review of financial reporting control at SIG in a joint project between SIG Distribution and KMPG that never identified substantial accounting cause for concern, albeit the review has made certain controls recommendations. Therefore, many employees were expected to quit the business as a result of disciplinary probe into the situations. The staff’s departure is attributed to their suspicion after the revelation of the irregularities.
The nature of work of accountants requires a high level of ethics (Modell, Vinnari & Lukka, 2017). Stakeholders in the company rely on accounting information to make crucial decisions (Aryee Walumbwa, Mondejar & Chu, 2015). From the article above. SIG which is the main company is making crucial decisions in getting into the UK market. They need to rely on the accountant information to get to know how to hit the UK market. The boss who is Meinie Older Sam is quoted recognizing that, there are signs of increasing markets. This has been determined by the revenue determined by the company’s accountant at roughly 2.87 billion.
The company also recognizes revenue losses and fluctuations through accounting documents (Scott, 2015)..
The auditors who come should only verify what the accountants have already done. In the case of the article (Sudaryanti, Sukoharsono, Baridwan & Mulawarman, 2015). Auditing is done by the KMPG and Deloitte audit company. It is from the accounting documents that the audit firm found inconsistencies. The inconsistencies lead to a number of the accountants being laid off by the company.
Accounting Ethics in SIG Group
The knowledge of ethics should also help the accountants in making certain important decisions as a way of solving dilemmas in their institution of work. Apart from the company, ethics of an accountant can also help the company in gaining public trust.
The ethics of accounting should allow for the accountants to take individual decisions for the company. It is these individuals’ decisions that make them be held responsible in case of a professional problem. The articles report staff who have been laid off due to poor decisions. The article quotes, that a number of employees are leaving the business following disciplinary investigations.
Ethics guide the accounting scandals that the accountants might engage in. Scandals are bad since they affect the overall public trust (Goddard, 2017). Companies with accounting scandals are likely to lose customers, shareholders, and investors. From the article, the scandal surrounding the accountants include; accounting irregularities and misstated profits. The employees’ accountants have been laid off after a suspension. The employees leaving the business have made the business lose market trust as recorded. The bosses have also lost trust in the accountants which have led to their course of action.
Ethics reveal that fraudulent activities by the accountants at the long run are normally identified by good firm audits (Eisenschmidt & Schmidt, 2016). The audit firms make ethics rules that do not allow them to hide the misstatements. From the article, SIG Company realizes that the accountants are involved in unethical practices of misstating profits. Their action is first realized by an unidentified whistleblower. Later this suspicion is confirmed by the two audit companies. This proves the ethical rule that at the end of it. Unethical practices are eventually brought to light. The two audit companies KPMG and Deloitte also haven’t downplayed the scandalous practices.
Accounting regulation is actions taken so that the company avoids certain errors that might come through accounting. The regulations are made from previous experiences (Nurunnabi, 2015). Companies and organizations normally set this regulation prior to the problems or even after suffering a setback.
Regulations are considered desirable to control windfall profits (Vera 2018). The companies making profits due to a particular season use regulation to maintain cost so that the profit is consistent throughout the financial year. The SIG Company from the article has used regulations that have off late seen growth in profits. Though they don’t make the regulations open they acknowledge having used regulations to stabilize profits. The article quoted says. Their control action has resulted into narrow losses. The pretax losses have reduced to 51.2m from 110m the previous year. The regulations, therefore, are used to stabilize profits.
Impact of the Accounting Scandal on SIG Group
Regulation is also used in ensuring that profit skimming is avoided. This when an organization only focuses on the customers that benefit the organization in terms of providing huge profits. Supply services are only done to the huge companies and not any other companies. The companies do this so that they maximize their profits. Regulations will make sure that they supply equally without accessing profits margin. From the article, one of the control measure taken by the company has determined the market margins. Through regulation of profit skimming the company has realized how the UK market has been complex to get a breakthrough. But they have been able to get a breakthrough in other profit gaining areas.
The regulation also involves the choosing of strategy that will help in implementing the company’s decisions. The regulations strategies include command and control. Command and control are when the company sets out clear activities considered acceptable and non-acceptable. The non-acceptable activities invite penalties. Moreover, how are the penalties supposed to be taken? From the article, the SIG uses the command and control strategy of regulation (Pasko, 2017). The accountants that have been suspected are first suspended from their duties. As they remain suspended an audit investigation is done. After the audit confirms the offense the accountants implicated is laid off. The laying off is also just done after there is a determination that there laying off will not affect the company in any other way again. The audit company and the stakeholders of the company determine the best control for the company.
Accounting measurement involves evaluating accounting data into measurable units. The measurable unit can be in terms of hours, money or even further units. The data that is supposed to be expressed include economic and financial data (Loeb, 2015). From the article, this theory has been used in determining the profits and losses made annually. The company has in recent times recorded a loss of about 50 million euros. This is an improvement considering the previous year they made a loss of up to 110 million euros. The accounting measurements have also been used to determine the revenue. The revenue recorded from the article by the SIG company lies at 2.87 billion flat.
The exposure draft by IASB talks about the use of technology in accounting (Kelly, 2017). The specific technology form is cloud accounting and internal software use. The exposure draft is trying to find out the cost that the implementation of the two forms of technology will have on the customer. The customer has to pay for the internal software that will eventually help in cloud computing. The exposure draft further recognizes that. If there other means to achieve cloud computing then the customer doesn’t have to be involved in the cost. The accounting organizations can pay for the cloud computing. The exposure is supposed to take different forms according to the draft. The main form by the draft is;
Accounting Regulation and its Role in SIG Group’s Scandal
These involve making the customer know the reason for the organization to use both cloud computing and the use of the software. The draft further gives a financial guidance on the cost of installation. The guide given further educates on the importance of the software. This makes the customer more educated on how the software works. It also ensures that the customer is not at pressure to pay for the technological advancements of the company.
Comment letters by the four main companies on the same include;
These groups agree with changes proposed by the draft. There main reason for their approval being. The involvement of both types of technology will result in consistency in accounting, there focus therefore was how technology makes an accounting to be the same globally. The three group further agrees with the customer program proposed. They are feeling it is sufficient enough into luring the customers into the technological advancement of cloud computing software.
The views for this group does agree with the implementation of the program. They even though give different ways of the entities acquiring and installing the software without involving the customers as part of the entity.
They are in total agreement with the use of installation. They even acknowledge using the same technology in their own company. They even go ahead to give the functional ways in which the advancement has made it easier for them. They do agree in the involvement of the customers but are cautious of the regulation (Anderson, Brown, Hodder & Hopkins, 2015). They acknowledge that the hosting arrangement has to be adjusted since benefits of the technological advancement does take place once but rather gradually.
The company agrees with the implementation of the process as discussed in the draft. However, they refute the second part of the proposal coming from the idea that:
It’s focused on only one aspect. It assumes another aspect that is involved in the implementation of the proposal. They go ahead to mention other factors like preproduction design and long-term supply arrangement. From their explanation, they demand further guidance on the disclosure of such crucial information
One similarity that can be noted across the four companies is the advantage of using cloud computing in accounting. They all appreciate the software installation giving different reasons. They cite reasons like consistency, reliability and profit making.
They, however, show differences on the idea of hosting arrangements. The Western digital corporation and the apple company feel the arrangement should be regulated or changed. They, however, have different reasons for the same. The first reason from the western digital corporation being that they don’t give profits as immediately as is explained in the draft. The second reason for realignment comes from the mindtheGAAP. They look at the move as the company’s asset and therefore the entity should find a way of installing the software without the hosting arrangement. They even go further to give methods in which the entities can use to remove the arrangement from the customers.
The other two articles are in agreement with the hosting arrangement giving different reasons. The apple thinks that since the improvement impact on the services (Tinkelman, 2015). The customer should take the cost as they are the ones going to be served even better. They also insist that all the useful information are given in the guidance. Therefore with the guidance, the customer can define where the payment comes from. The last group calCPA agrees with the host arrangement. The reason that the software is an asset that all the shareholder should share the cost. They, therefore, agree with the host.
The Captive Theory
The captive theory involves government policy forcing an act on the company. It has not applied to any of the explained letters. The companies through their comment letters are either acting on their interest or the customer’s public interest.
The Private Theory
Applies to all the companies through their letters (West 2018). They acknowledged the benefits of cloud computing to the company. Referring to it as an asset that ensures profitability. This theory cuts across all the four company letters. It is, therefore, the highly applicable. The comment letter by the Apple Inc., however, goes an extra mile into putting their private company first. The comment letter by covers the implementation cost in relation to the profit margins that the company will acquire (Millo, Barman & Hall, 2016). The profit margin is further developed into timelines that the letter acknowledges will be gradual and immediately.
The Public Theory
The theory that makes the company or the institution act towards the need of the public best. Their action is geared towards serving the public interest before the private interest. The public, in this case, is normally their customer (Ahinful, Addo, Boateng & Danquah, 2017). The interest of the customer from all the four companies is considered. They do agree that the licensing should be on the hands of the customer. They also do agree that the guide manual should help the customer understand the cost. Lastly the action of not imposing it on the customer but a request for their corporation in implementing the exposure draft.
In conclusion, this essay has discussed both issues in accounting thought and the exposure draft which is meant to rectify the issues identified. For example, the article, “SIG workers leave business following accounting scandal” and the exposure draft, “Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40)” have informed this discussion. The article was written by PRESS ASSOCIATION and appeared on daily mail online newspaper of Monday, May 7th, 2018. The main issues discussed in the article are the accounting scandal (profit overstatement and accounting irregularities) at the SIG Distribution in UK. This has led to probe by both KMPG and KMPG and Deloitte hence triggering a mass quitting of the business by many employees due to the revelation of the scandal. On the other hand, the exposure draft has also be discussed based on four comment letters from various entities. These organization that have responded to the exposure draft include Apple Inc., The mindtheGAAP group, The Western Digital Corporation, The mindtheGAAP group, and The California Society of CPA.
References
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Eisenschmidt, K., & Schmidt, M. (2016). Responsiveness as a Challenge for the Legitimacy of the IASB-An Evaluation of Current International Accounting Regulation and of Alternative Approaches.
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West, A. (2018). After virtue and accounting ethics. Journal of Business Ethics, 148(1), 21-36.
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