Research The Internet Or Strayer Databases To Locate A Firm

Research the Internet or Strayer databases to locate a firm

For this assignment, research the Internet or Strayer databases to locate a firm that was involved in a fraud and/or embezzlement case. Explain how the firm’s accounting information system (i.e., components and functions) contributed to the fraud and/or embezzlement. You will need to focus on how each component/function of the accounting information system failed, which resulted in the scandal/case.

Write a ten to twelve (10-12) page paper in which you:

Based on the information you researched, assess the failure of the firm’s accounting information system to prevent the related fraud/embezzlement. Imagine that the company you researched uses a third-party accounting system.

Evaluate the effectiveness of the firm’s stakeholder response in the event that a third-party accounting system suffers a breach. Include an assessment of the level of responsibility of the software provider to the business and its clients. Provide support for your rationale.

Determine what advances in accounting and/or information technology could have prevented the event from occurring. Provide support for your argument.

Evaluate what changes should be made to both the Sarbanes-Oxley Act of 2002 and other current laws to make them more effective in deterring companies from committing such crimes. Recommend a strategy that the company you indicated may use to prevent future business information failures. Indicate how the company should approach the implementation of your recommended strategy. Provide support for your recommendation.

Use at least three (3) quality resources in this assignment.

Paper For Above instruction

The rise and fall of corporate scandals in recent decades has underscored the critical importance of robust accounting information systems (AIS) in safeguarding assets, ensuring accurate financial reporting, and maintaining stakeholder trust. Selecting Enron’s scandal as a case study provides a comprehensive insight into how failures in AIS components facilitated fraudulent activities. Enron’s case highlights the vital need for effective controls, transparency, and accountability within accounting systems, particularly when third-party software is involved.

Enron and the Role of AIS Failures

Enron Corporation, once a leader in energy trading and utilities, became infamous after its spectacular collapse in 2001 amid revelations of fraudulent accounting practices. The failures in its AIS played a pivotal role in enabling the fraud. The company employed complex financial structures and off-balance-sheet entities, which were managed through sophisticated, yet poorly monitored, information systems. These systems’ components, including transaction processing modules and reporting functions, failed to prevent the manipulation of financial data. For instance, the lack of rigorous internal controls within the AIS allowed executives to artificially inflate earnings and hide liabilities.

Specific components of Enron’s AIS, such as data integrity controls and audit trail functionalities, were deficient or deliberately manipulated. The absence of effective segregation of duties and oversight facilitated fraudulent entries without detection. Moreover, the reliance on third-party accounting systems—such as Arthur Andersen’s auditing services—compounded issues by compromising transparency and enabling collusion. The firm's auditors overlooked or failed to detect irregularities partly because of over-familiarity and conflicts of interest, further weakening the system.

Assessment of Failure and Stakeholder Impact

The failure of Enron’s AIS to prevent fraud demonstrates deficiencies in system design, implementation, and oversight. If Enron had adopted a more resilient, transparent, and monitoring-rich AIS framework—possibly involving integrated third-party solutions with enhanced security—the chances of fraud could have been mitigated. The reliance on third-party accounting systems introduces additional vulnerabilities, particularly if these providers lack rigorous security measures or accountability standards.

In scenarios where a third-party system suffers a breach, stakeholder trust is profoundly impacted. Shareholders, employees, regulators, and the public rely on the integrity of AIS for accurate information. When breaches occur, stakeholder reactions typically involve legal actions, loss of trust, and declines in stock prices. The software provider, as a third-party vendor, bears significant responsibility; their responsibilities include maintaining cybersecurity, ensuring system integrity, and providing transparent audit trails. Their accountability diminishes the company’s ability to control the environment, emphasizing the need for stringent vendor selection and oversight, as reinforced by the Sarbanes-Oxley Act.

Technological Advances and Prevention Strategies

Advances in accounting and information technology, such as blockchain and real-time data analytics, could substantially prevent similar fraud events. Blockchain technology, with its decentralized ledger, provides immutable transaction records, making fraudulent modifications exceedingly difficult. Implementing enterprise resource planning (ERP) systems with built-in AI and anomaly detection could flag irregularities early, facilitating prompt corrective actions.

Moreover, integrating continuous auditing tools can provide ongoing oversight, ensuring discrepancies are caught promptly. These technological innovations are increasingly accessible and cost-effective, offering a future-proof approach to fraud prevention. For example, the adoption of blockchain in financial reporting could have made it impossible for Enron to manipulate its financial data undetected.

Legal Frameworks and Policy Recommendations

To enhance deterrence of corporate fraud, revisions to the Sarbanes-Oxley Act of 2002 could include more explicit mandates on third-party software verification, cybersecurity standards, and mandatory periodic third-party audits of AIS. Updating laws to address emerging technologies ensures that regulatory frameworks keep pace with innovation. Additional penalties for software providers found negligent or complicit in breaches could incentivize better security practices.

Furthermore, a comprehensive strategy for the researched company would involve establishing strict vendor management protocols, implementing layered cybersecurity measures, and fostering a culture of transparency and accountability. Training staff on fraud detection, routine system audits, and adopting state-of-the-art security tools are essential components of this strategy.

The company should also consider adopting a phased approach for technology upgrades, including pilot testing, staff training, and continuous monitoring. Collaboration with cybersecurity experts and technology vendors ensures ongoing compliance and system resilience. By fostering open communication channels among stakeholders and emphasizing ethical standards, the company can better prevent future integrity failures.

In conclusion, a multifaceted approach—combining advanced technology, legal reforms, and rigorous internal controls—is vital in preventing financial scandals. The evolution of AIS and legislative frameworks must proceed hand-in-hand to create resilient financial reporting environments that protect stakeholders and uphold market integrity.

References

• Cooper, D. J., & Sherman, H. D. (2009). The rise and fall of Enron. Journal of Business Ethics, 85(2), 227-244.
• Kirk, R., & Owen, G. (2018). Blockchain technology in financial reporting: Potential and challenges. Journal of Accounting & Organizational Change, 14(4), 561–580.
• Laux, C., & Laux, V. (2020). The impact of cybersecurity breaches on corporate governance. Business & Information Systems Engineering, 62(2), 157–166.
• Ly, N., & Schmid, S. (2021). Advances in AI and their implications for fraud detection. Journal of Information Security and Applications, 59, 102799.
• Public Company Accounting Oversight Board (PCAOB). (2022). Enhancing audit quality through technology. Retrieved from https://pcaobus.org/
• Rezaee, Z. (2019). Corporate governance and financial reporting quality. Routledge.
• Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002).
• Schmidt, R., & Maroun, W. (2020). Legal implications of cyber breaches and regulatory responses. Law and Business Review of the Americas, 26(2), 75–93.
• Vasarhelyi, M. A., & Greenstein, M. (2019). Continuous auditing: Theory and application. Journal of Emerging Technologies in Accounting, 16, 1-15.
• Wang, G., & Feng, Q. (2018). Data analytics and fraud prevention in financial organizations. International Journal of Data Science and Analytics, 9(4), 321–330.