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Tyco International Accounting Issues - Research Paper Example

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Tyco International Accounting Issues There is compelling evidence that past performance records at Tyco did not reflect the actual picture of the company’s status. Multiple reports have given strong indications of irregular accounting practices…
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Tyco International Accounting Issues
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Tyco International Accounting Issues

One of the most notable accounting malpractice employed by the company involved the low attrition rate, which were written off at a remarkably slow pace. The consequence of this accounting misnomer was a significant inflation of the profits as reported in the company’s financial records. A consistent pattern of this accounting practice had the effect of giving the shareholders the wrong kind of impression regarding the performance records of this company (Maremont, M and, Laurie Cohen 12 a). The markets were also deluded into believing in the falsified accounting records of the company. According to financial analysts, the amount of money involved in the slow attrition accounting practice was the major driving factor. For instance, it was reported that the company spent large sums of money in purchasing accounts from dealers. An estimate of 1.3 billion dollars has been given as the amount of money used by the company to purchase the accounts in 2001. Major discrepancies have also been seen in the mismatch between the posting of assets acquired and the selling prices that were attached to the same. This aspect has often been cited as a case of deliberate falsification of information intended to paint an artificially positive picture about the performance of the company (Bragg 23). One such case involved the purchase and sale of Anglo Seal division. Anglo Seal was bought for about 20 million dollars according to the information posted in the company’s accounting records. In the space of time of one year, the same asset was sold off at a price of 111 million dollars. Some analysts argue that the real losses incurred by Tyco could be even much higher given the fact the team of accountants and lawyers who worked through the companies records overlooked or could not access some sensitive omissions and commissions due to weaknesses of evidence (Maremont and Laurie 10 b). According to analysts, it is not practically conceivable how an asset could appreciate to nearly eight times its purchase price within the short time of a year. The obvious intention was to bring down the value of expenses, while adjusting upwards the level of sales and revenues. As a result, the company presented itself as particularly robust in terms of growth. The danger of such accounting practices is that they are not sustainable in the long run. They tend to shield the company’s failings from the shareholders and the markets. According to some analysts, such practices have the capacity of bringing down companies because all safeguard measures are rendered useless in the face of irregular and cosmetic accounting practices. The irregular practices often shield the companies from the indicators of possible slump of a slackened performance. Defenders of Tyco’s book-keeping methods have argued that any alternative ways of accountancy could not significantly alter the state of accounts as reported by the company (Maremont and, Laurie 12 c ) . They rely on the reports of internal auditors who argued that few things would change in terms of performance regarding the company’s overall growth strategy. It would be appropriate to consider the weaknesses of the irregular accounting practices in comparison to similar practices that often ended up in total failure. The collapse of Meryl Lynch and other famous firms were attributed, in part, on the reliance on cosmetic ... Read More
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