The Business Book

120120

D O N O T L E T

Y O U R S E L F B E

INVOLVED IN

A F R A U D U L E N T

B U S I N E S S

PLAY BY THE RULES

B

usiness accountants have

two roles: to record profits

and cash flow and to provide

tightly estimated data about costs

to help make strategic decisions.

The accountant’s instinct is to be

cautious and prudent—costs and

cash-outflow figures generally err

on the high side, while revenues

and cash inflows tend to be on the

low side. Any surprises should be

positive. For example, in January

2009, Honda Motor Company

warned that dramatic falls in sales

worldwide—due to the global

downturn and the strong Yen—

would force the company into a $3.7

billion loss in the fourth quarter of

its financial year. However, the loss

IN CONTEXT

FOCUS

Governance and ethics

KEY DATES

1978 US scholars Ross

Watts and Jerold Zimmerman

write Towards a Positive

Theory of the Determination

of Accounting Standards.

1995 French professor Bernard

Colasse claims that “there isn’t

any true result, but a result

arranged using creative

accounting techniques.”

2001–02 Telecoms giant

WorldCom overstates earnings

by more than $3.8 billion.

2009 UK professor David

Myddelton publishes Margins

of Error in Accounting.

2012 Directors of US discount

website Groupon identify

a “weakness” in financial

reporting, five months after

becoming a public company.