Assignment 1: Financial Statement Restatement And Ethics

Assignment 1 Financial Statement Restatement And Ethicsdue Week 3 And

Search the Internet or Strayer databases for a company that recently restated its earnings. Based on the company researched and identified: Write a two to three (2-3) page paper in which you: Assess the factors that contributed to the financial statement restatement, signifying the executive management team’s attitude toward the restatement. Suggest how the restatement may have been avoided during the initial reporting process. Explain the impact to the company’s stock price when the restatement was released and to future earnings forecast, indicating whether or not you believe the impact to the stock price was justified.

Evaluate the restatement in terms of management’s ethical violations according to the requirements of the Sarbanes-Oxley Act, providing recommendations to management on how to avoid these problems in the future. Provide support for your recommendations. Use at least two (2) quality academic resources in this assignment.

Note: Wikipedia and other Websites do not qualify as academic resources. Your assignment must follow these formatting requirements: Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format.

Check with your professor for any additional instructions. Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

Paper For Above instruction

The recent financial scandal involving General Electric (GE) and its subsequent restatement of earnings provides a compelling case to analyze the factors leading to the restatement, the ethical implications, and the preventive measures that could have been implemented initially. The examination of GE’s financial restatement underscores the importance of robust internal controls, ethical management, and compliance with relevant legislation such as the Sarbanes-Oxley Act.

The primary factors contributing to GE’s earnings restatement, announced in 2019, include overestimations of performance in its power division and accounting adjustments related to long-term service agreements. Management’s attitude toward the restatement appeared to be somewhat defensive yet ultimately transparent, as GE acknowledged shortcomings in its reporting practices. This attitude suggests an attempt to rectify past inaccuracies while trying to maintain stakeholder trust, though it also indicates prior lapses in oversight.

The restatement could have been avoided through rigorous internal controls and more proactive internal auditing processes. Regular reconciliation of estimates and actual results, along with better oversight by the audit committee, might have flagged inaccuracies earlier. Additionally, fostering an organizational culture that emphasizes ethical accounting practices and encourages transparency could have mitigated the need for a significant restatement.

Following the announcement of the restatement, GE’s stock price experienced significant decline, reflecting investor distrust and concerns over the company’s financial health. The initial drop was justified as investors seek transparency and accountability in corporate disclosures. The restatement also cast doubt on future earnings forecasts, leading analysts to lower their projections and contributing to ongoing stock volatility.

From an ethical perspective, GE’s situation highlights violations of principles outlined in the Sarbanes-Oxley Act, which mandates accurate financial reporting and internal controls to prevent fraud. Management’s failure to ensure accurate disclosures can be viewed as an ethical lapse, possibly driven by pressure to meet earnings targets or to sustain market valuation. To address these issues, GE’s management should implement stronger internal controls, promote a culture of ethical compliance, and ensure independent audits are rigorous and unbiased.

Recommendations for management include investing in advanced internal audit systems, providing ethics training for financial staff, and fostering an environment of transparency where employees feel empowered to report irregularities without fear of retaliation. Regular training and adherence to Sarbanes-Oxley compliance procedures could prevent future misreporting and restore investor confidence.

In conclusion, GE’s earnings restatement underscores the critical importance of ethical management and strong internal controls. While the restatement negatively impacted the company’s stock and credibility, it also serves as a catalyst for implementing more effective governance practices aligned with legal and ethical standards. Upholding transparency and accountability is essential for long-term corporate sustainability and stakeholder trust.

References

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• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial accounting theory and analysis. Wiley.
• Shehata, B. (2022). Corporate scandals and internal control failures. Journal of Business Ethics, 172(3), 589-604.
• U.S. Securities and Exchange Commission. (2020). The Sarbanes-Oxley Act of 2002: An overview. https://www.sec.gov/about/laws/soa2002.pdf