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Report: Critically evaluate the role of accounting in the collapse or failure of your company - Essay Example

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Report: Critically evaluate the role of accounting in the collapse or failure of your company

However, the most cited reason for the collapse of the bank is the application of Creative accounting by the top management of the bank, seeking to serve their own interests and deny the general public an opportunity to get a true glimpse of the nature of the bank’s financial situation (ANCODEESPANA 2012, p7). This has led to the recent CEOs of the bank being removed from their position, owing to the culpability in the accounting irregularity. In addition to the contributions of the top management in the collapse of the CAM Bank, the auditors of the bank’s books of accounts participated in the same questionable practices, since they did not raise any question to the discrepancies realizable in the accounting statement of the Bank, despite there being sufficient grounds to indicate such discrepancies (Penty 2011, Web). Therefore, the collapse of the CAM bank can be traced to accounting practices, and thus this discussion seeks to investigate the role of accounting in the collapse or failure of Caja Mediterraneo (Cam) Bank, with a view to understanding the specific accounting concepts that were applied. The role of accounting in the failure of the CAM Bank can be traced in the accounting concept of creative accounting, where loans to directors were offered at low rates and bonuses (IMF Country Report 2012, p22). While CAM Bank is a non-profit financial institution offering retail banking service to the customers, especially individuals and SMEs, it is also mandated to offer loans and mortgages to its customers, especially for house and home property development (Anon 2011, Web). Nevertheless, while there are standards and policies guiding the issuance of loans to the customers of the bank, including the banks own employees, for mortgage or property purchasing purposes, the directors had adopted a different illegal parallel-policy formulation, which allowed the loans to directors at low rates and bonuses, thus saving them the payment of the due mortgage or loam payment rates (Cook & Pond, 2006 p22). This served to make the financial situation of the Bank worsen, to the extent that the bank had lost 1.7 billion in the first nine months of the year 2011, while also incurring the bad loans ratio to the tune of 28.3% (manta 2012, Web). This practice has worsened the financial situation of the CAM bank, to the extent that it has become impossible for the bank to continue its operations on its own, and thus has to be operated under the control of The Bank of Spain, while also having more funds channeled to the bank, to ensure that it can revive its operations (Bjork 2011, C3). Boosting the balance sheet is yet another accounting concept that has been adopted by the top management of the CAM Bank, to ensure the falsification of its financial records, and thus improve the image of its financial performance, while in reality the situation was worse (Spain's central bank favors merger of Caja Madrid’ 2010, Web). Balance sheet boosting is an accounting concept that is applied by companies and other organizations to project a strong financial condition currently, and give an indication of future financial prosperity of the business organization. The top management of CAM bank applied this accounting technique to inflate the financial accounts of the Bank, through inflating the accounting receivables and thus projecting a financial situation where the bank is likely to receive more incomes, while in the real sense the Bank was running at an ...Show more
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Name: Course: Date: The role of accounting in the collapse or failure of Caja Mediterraneo (Cam) Bank CAM bank has been a recognized financial institution in Spain, which has been serving a large customer base, to the extent of being classified as the fourth largest savings bank in Spain, by the year 2007 (manta 2012, Web)…
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