Financial Fraud – Accounting and Integrity

In commerce, companies need to be seen as leaders in their respective sectors; Ever-improving, profitable behemoths that will generate large dividends for their stakeholders. However, this often isn’t the case. Recently, the frozen yogurt chain, Freshii, announced that it did not meet its projected store openings. Due to this failure to deliver, investors became skeptical and began pushing the stock price down – almost 40% in fact.

When we look at cases in which companies commit financial fraud, reasons such as these are often brought up. With an ever-looming presence and pressure that investors pose, among other factors, company executives can sometimes waver and illegally alter figures. When companies see how much missing a target projection or a drop in quarterly earnings can affect their financial situation, it may incentive executives to “cook the books” and produce inaccurate and untrue financial statements to present to its stakeholders. This, in itself, is highly unethical and betrays the fiduciary responsibilities a company has to its shareholders. In “The 10 Worst Corporate Accounting Scandals of All Time“, companies such as Enron, Tyco, and Waste Management all altered their earnings, income, or debt on their financial statements in order to make themselves look better on paper to investors. This conduct not only violates ethical boundaries but also many laws and regulations governments have in place to protect investors and their capital. By providing false data on balance sheets, income statements, earnings reports, and so forth, it sways investors to invest their money in something that is not what it seems. People have lost their life savings because companies have falsified their finances, hoping to seem more appealing to investors. This is unethical, immoral, and simply not an appropriate way of conducting business.

Although Freshii didn’t meet its target projection, analyst Mark Petrie was quoted as saying, “We believe the consumer and franchisee propositions remain attractive, and see 2019 guidance as achievable.” Although Freshii Inc’s stock price fell drastically, investors can still regain trust in the company – the same can’t be said for companies that get caught lying. For these reasons, it is so important that companies have strong internal regulations and controls to prevent external pressures from compromising their integrity.