What do you think about this approach? Do you agree or disagree? Why?
An accounting scandal at British retailer Tesco in 2014 led to fraud charges being filed against three former employees. At the time of the fraud, Tesco suspended eight managers thought to be involved in a scheme to book revenues early and delay reporting of expenses. Such a practice would lead to overstating profits and making company performance look better than it actually was.
Although criminal charges have been filed, the company did not believe that the managers benefited personally. Some managers resigned before the scandal broke feeling "...'compromised' as a financial professional." Others were "too scared to speak out because they're worried about losing their jobs and paying their mortgages."
Tesco paid a fine of $162 million and compensation to shareholders as a result of the activities.
In the case of Tesco, managers made choices about the timing of revenues and expenses that led to fraud charges. In order to avoid that, perhaps accountants should always assume the worst-case outcome. Then they will not be accused of misleading investors. What do you think about this approach? Do you agree or disagree? Why?
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