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ETHICS AND FINANCIAL SERVICES
Finance & Accounting
Pages 5 (1255 words)
Ethics and Financial Services Name Course Instructor Date Ethics and Financial Services Question A1: Outline the frauds identified in the case and explain the inconsistencies with proper accounting treatment. Relate your answer to broad accounting concepts and accounting standards where relevant.
After conducting a financial analysis, it was evident that the company had overstated its revenues in the year 1997 and 1998. During this era, some of its techniques were quite confusing and blatant. The company had excluded some of its expenses from its financial book. The case highlights various red flags such as an extreme growth-oriented management team and growing need for extra capital. With this, the auditors allowed themselves to be misled and missed the red flags that could have alerted them to dig and analyse their analysis more deeply. During the era 1990-1994, the company was involved in a fraud scheme whereby Gottlieb and Drabinsky received $7, 000, 000 directly or through the company owned by Gottlieb. Approximately $ 4, 000, 000 of the total amount was capitalized as the pre-production costs. Gottlieb and Drabinsky operated a kickback scheme with Livent vendors and took the mentioned amount from the company and took into their own pocket. To fully convince the company of the transaction, Gottlieb instructed the two vendors to present an invoice that could not expose their deal. After Livent agreeing to the deal, Gottlieb and Drabinsky received the payment for bogus services. In the mid 1990s, it became difficult for the company to attain its financial goals. Gottlieb and Drabinsky enjoyed their financial gain, and in turn, the company had to bear the loss. ...
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