Samenvatting
Summary ARM Recap Lecture and Seminar papers
- Instelling
- Universiteit Van Amsterdam (UvA)
Summary of the lecture and seminar papers we need to know for the exam.
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Voorbeeld van de inhoud
ARM seminar notesWeek 2 Gendron Y. and Spira L.F.
Background
Anderson was blamed for not facilitating the fraud that was going on in Enron. Arthur Andersen was
the number one of the big four in the past. This paper looks at the perspective of people who used to
work for Anderson and lost their position because of this situation. This paper is about two questions
- To what extend was organizational controllability controlled within Anderson implicated in
its demise? (control within accounting firms)
- And to what extend was regulatory controllability implicated in its demise? (control over
accounting firms)
They asked about they feel about the controls internally in Anderson around the time Enron collapse.
Where they sufficient or not? And could they be improved? And how did they feel about the
regulators?
The paper investigates the construction of controllability boundaries (nature of control) surrounding
financial auditing in aftermath of the collapse.
They asked the question how did control mechanisms within Anderson and beyond influence its
collapse post-Enron?
They motivate that by studying a organizational crisis it can make visible previously hidden tensions
and controversies. They try to figure out if financial auditing is controllable? How this is controlled?
And how it should be controlled?
Theory:
Clan controls: controls emanating from shared values and norms as a result of a socialization process.
Market control: is an output control, and it talks about what you deliver.
Bureaucratic controls: are all about rules, policies and surveillance. They focus on the process.
Interpretive schemes: their way they reflect on issues. They say that interpretive schemes are
normally stable, but may be different with high stressful moments and rare events, this might change
the way you reflect on things.
Exam style answer: market based controls enable the spread of commercialism according to this
paper.
Findings:
There are three core interviewee clusters:
Unwavering: have a great deal of confidence in the internal controls that are operated in Anderson.
Particularly the clan controls and bureaucratic controls. They believe despite the collapse the clan
controls where superb. However in conjunction with that they don’t believe that new regulation
from the outside would change what have happened.
Restoring: they also have strong confidence in the controls within Anderson, but more because they
believe they could be improved. And they also have a low level of confidence in regulators being able
to prove the way an organization like Anderson is operated. So for them yes there were some issues
about controls in Anderson, but these are easily resolvable. We can restore a better norm, don’t
bring it outside regulation.
Sceptical: these individuals are not particularly confident about the controls that existed within
Anderson, but are much more positive ab out the possibility of regulation from outside to improve.
They saw that because of commercialism the internal controls changed.
So there is a split among the interviewees.
,Actually what happened subsequent in Enron was an unset of external regulation, because the
PCAOB and another act came out, and regulation from the outside on audit firms became highly
apprehensive.
Question: should external regulators be more involved in governing the audit profession?
Answer: Yes but not extensively involved.
Key take-aways:
This paper is all about a set if different interviewees reflecting the collapse of Enron. This
rationalization is unpacked in the context of the role of controls in enabling the poor practice to
occur in Anderson, but also the role of changing controls in someway of making sure it doesn’t
happen again. Under all the interviewees there is a general anti regulation field, were they say no
new regulations are not going to help with these kind of problems. Their rationalization was
influenced by professionalism and free market arguments. Professionalism in their confidence that
the threats to professionals and the commitment of professionals would pervade without the need
for regulation. In the market for audits, there is market free reputation. They are going to be
destroyed if you engage in less proper activities.
They found that bureaucratic controls now dominating clan controls. The audit procedures nowadays
is al about box ticking.
Gabbioneta
A case study examining the evolution and the reasons behind the major corporate fraud which
emerge in an Italian company.
The analysis from this paper is distinct from internal controls and risk management at the
organizational level we have been undertaking in the course.
The paper studies the relationship between the wider institutional context and sustained illegal
corporate activity. It looks at how the accounting fraud conducted by Parmalat was facilitated (not
only tolerated but also facilitated) over an extended period. This fraud was one of the largest.
The puzzle for the auditors is to find out:
- How could Parmalat’s crude forgery have continued for so long, and on such a massive scale?
- How could its sustained strategy of deception happen?
Their key question: How can organizations successfully conceal illegality for lengthy periods of time
despite being surrounded by networks of professional regulators and analysts?
Motivations
Prior work focused on three prerequisites of corporate illegality:
- the motivation to engage in fraud
- what sort of opportunities have occur to allow fraud
- what sort of choice was exercised by those opportunities.
The paper states that this is a very narrow focus often at the organizational level. This
underestimates the wider potential influence of the institutional context on corporate illegality. So
this study responds to calls to study the institutional influence on sustained corporate malpractice, to
move the focus away from those three organizational and governance factors.
, Parmalat case:
- family-run milk company
- 1980 started diversify more products.
- 1990 stock listed in Italy.
- Tanzi had a controlling stake in the company and owned 50% of the shares
- On the board there were a lot of family members and associates and friend of the family and
they were also on key committees of the organization itself.
- Tanzi combined the chairman and CEO roles, which is often deemed to be a flop for the
corporate governance, because you don’t have the independent check.
- Tanzi and all board members had long personal relationships with audit partners in Grant
Thornton it external auditor.
Growth strategy:
The organization expanded significantly (diversify more products) and this was largely fueled by debt.
Massive debt to buy companies and expand new markets.
Parmalat overstated its earnings:
€31 million in 1990
€1000 million in 2002
However this debt was transferred off-balance sheet to offshore tax havens. So when the
consolidated accounts where being produced debt was not appearing as a key component part of the
debt owned by Parmalat. This off-balance sheet transaction was an advice from Grant Thornton.
€3.9 billion of cash was suppose to exist on a bank account of a subsidiary called Bonlat. This
comprised 38% of Parmalat’s group assets, but it actually turned out to not be existing. And Bonlat
turned out was also a fake company. Parmalat filed for bankruptcy in December 2002.
RQ: how could this sustained strategy of deception happen?
From their analysis they indicate three processes which emerge to help them theorize and
understand why this sustained corporate illegality was able to exist for such a long time. So the three
institutional processes offered opportunities for the deception:
- Institutional endorsement
- Regulatory loopholes
- Institutional ascription
Theoretical model of sustained and successful corporate illegality:
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