The Accounting Profession and Bankrate Case Paper Example

Introduction

The accountants are tasked with the responsibility to assist the individuals, complex corporations and government bodies to maintain financial statements that reflect a true and a fair financial state. The financial statements should be maintained according to the accounting standards as set by the government's regulatory bodies. The financial statements are expected to assist in compliance with tax laws and regulations, protection of investors and also assisting the entities to make a sound financial decision. It is therefore important that the individuals willing to occupy the accounting departments understand the credentials required as well as the standards that need to be observed. Apart from explaining the accounting credentials, standards, and regulation, this piece of work has identified the Bankrate Inc. case to evaluate and demonstrate the effect of the accounting and fraudulent financial activities and their effect on companies and the accounting profession.

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Part 1

The credentials needed to become an accountant

Advanced education is required for one to become a certified public accountant in America. A bachelor's degree in accounting is considered as a minimum educational requirement for individuals willing to become certified public accountants. However, the degree program undertaken should be accredited by the relevant institutions tasked with the development of necessary standards and regulations to govern the activities of certified accountants. There is a difference between an accountant and certified accountants. The certified public accountants (CPA) are accountants who possess state certification and licenses. The CPAs are licensed to offer auditing services as well as a review of financial statements. The certified accountants are also allowed to file tax returns on behalf of their clients. It is important to note that the activities of the accountants are limited to the performance of accounting duties as required by their employers.

All certified public accountants are required by nearly all states to pass the four parts of the CPA exams. The four components consist of auditing and attestation, company environment and concepts, regulations and financial accounting and reporting. For instance, approximately all states call for the CPA applicant to complete 150 semester hours of institution course works to attain the certification. The information necessary for the guidance on the examination process to the candidates is provided by NASBA and AICPA ( Nasba.org, 2018). After successful completion of the exams, the individual candidates must determine where they want to obtain a CPA license. The requirements to be fulfilled to get a CPA license to vary from state to state. The conditions can include issues related to education and experience. The majority of states may require at least one year of public accounting work experience to issue a license. Other states may require a specific amount of auditing experience.

The professional organizations in the accounting industry

The professional organizations are tasked with the responsibility of setting standards for both federal resources and state resources. Such organizations include the American Institute of certified public accountants (AICPA), Financial Accounting and Standards Board (FASB), Government Accounting Standards Board (GASB) and Washington State Society of CPAs (WSCPA).

In the United States, AICPA is the national professional organization for all the certified public accountants. AICPA is tasked with the responsibility of maintenance of the highest level of uniform certification and issuance of licenses about all designations related to CPAs. AICPA is also tasked with the responsibility of establishment and monitoring of professional performance standards for the public accounting industry (Larson Gross, 2018). The financial accounting standards board (FASB) is responsible for the establishment and improvement of financial accounting and reporting standards. The FASB is also tasked with the responsibility of offering education and guidance to the public, issuers, auditors, and users of financial statements and the information contained therein. The Government Accounting Standards Board (GASB) has a mission related to establishment and improvement of accounting and financial reporting standards for state and local government. The objective for GASB is to ensure the provision of useful information to the public and users of financial reports. The Washington state society of CPAs (WSCPA) is a Washington based professional organization of certified public accountants that provides information for CPAs, students and also clients. The information is provided through their website and includes the descriptions and accounting topics for professional education.

The standards or regulations that must be followed by the accountants

The financial accounting standards board (FASB) identifies the Generally Accepted Accounting Principles (GAAP) as the combination of regulations that cover the particulars, complications, and legalities regarding commerce and corporate accounting. The comprehensive set of accounting values, practices, and methods as defined by the GAAP are hence used as a foundation for financial accounting and reporting by the FASB. Following of the recommended GAAP guidelines is a requirement by the U.S laws for all the businesses that issue audited financial statements to the public, including all corporations that trade on stock exchange markets and indices.

There are at least three rules which form the basis of compliance of GAAP in an attempt to eliminate the possibility of preparation of misleading financial statements entirely. The three rules ensure a consistent financial accounting and reporting standards that make it possible for public and potential investors to evaluate the actual financial position and performance of an entity (Schroeder, 2015). The set of laws comprise the fundamental accounting doctrine and guideline, the Rules and Standards earlier released by the Accounting Principles Board and the Current FASB, and the generally accepted industry practices (GAAP).

The core concepts that should be followed by all reporting entities include the principle of regularity which requires the accountants to adhere to the established rules and regulations strictly (Palmrose, & Kinney, 2018). According to the law of consistency, all financial reporting processes should apply consistent financial reporting standards. The act of sincerity requires that certified accountants should observe accuracy and impartiality. The process of preparation of all financial statements should follow a consistent procedure under the law of permanent methods. The policy of non-compensation requires that positive and negative aspects of organization performance should be fully reported without a viewpoint of liability payment. The policy of prudence directs that speculation should not influence the reporting of financial data. The techniques of assets valuation should form an assumption that the operations of the entity are expected to continue under the principle of continuity. The law of periodicity requires that the reporting of accounting activities should be divided into standardized accounting periods such as fiscal years. The policy of utmost good faith requires that all the parties involved in the preparation of the financial statements of the reporting entities acted in honesty.

Part 2

The Bankrate case and its impact on the accounting profession

On sept.8, 2015 the U.S Securities And Exchange Commission announced that Bankrate Inc. had agreed to settle the accounting fraud charges worth $15 million. The allegations indicated that then-CFO, Edward, director of accounting, Matthew, and finance vice-president Lerner had established a scheme with an intention to fabricate the company's revenues and avoid booking of certain expenses in the financial statements in an attempt to achieve their desired results. The three individuals manipulated the earnings before interest, depreciation, and taxes to achieve a key financial metric. The manipulated financial results overstated the net incomes for the year ended 2012. As a result of the manipulation and announcement of inflated incomes, the company managed to sell more than $2 million in stock. Bankrate and learner had also been accused of consenting to an order to cease from violating the antifraud and other federal securities laws. Lerner agreed to pay penalties worth $150,000 and the illegal profits amounting to $30,000. Complaints were also filed against DiMaria and Gamsey for violations, aiding and lying to auditors amongst related charges. In June 2018, the two pleaded guilty for their roles in orchestrating accounting and securities frauds.

The long-term and short-term consequences of the fraudulent activities

The consequences of such accounting and fraudulent activities have adverse effects on the company, the professional auditors, and accountants and the international financial markets. The fraudulent activities affect the certified public accountant's responsibility for detection and protection of frauds. The accountants are held accountable for engagement of fraudulent accounting activities. The professional accountants are under a huge pressure to perform audit and to obtain reasonable assurance on whether the financial statements contain any material misstatements either through errors or fraud (DeZoort, & Harrison, 2018). The nature of the risks associated with the fraudulent activities requires the auditors to increase the level of sensitivity to dig deeper into the reporting activities of the companies. Another challenge to the profession includes a misconception that the CPAs are responsible for the detection of all kinds of fraudulent activities in the financial statements. The misconception about the roles of an auditor on matters related to detection of fraud results in a lack of trust on the professionals.

Summary and conclusion

The reporting entities are also faced with both short-term and long-term consequences related to fraudulent activities. Once identified, the companies are subjected to huge penalties as well as demands to refund all gains resulting from such activities. Huge bonuses are paid to the company's executives for unworthy performances. The lenders are also manipulated and can suffer huge losses in the future as a result of the inability of the company to repay its liabilities. Long-term challenges for the company can include the cash flow problems as a result of poor performances associated with inability to pay debts. In the long-term, the fraudulent schemes will undermine the credibility, quality, and transparency hence the integrity of the financial reporting process. The reliability and the impartiality of the auditing line of work are also likely to endanger. The capital markets are likely to lose confidence in both short and long-term. In such a scenario, the financial development of the corporations is negatively affected. The erosion of public confidence and trust in the accounting and auditing profession affects all parties and may require regulatory intervention.

References

DeZoort, F. T., & Harrison, P. D. (2018). Understanding auditors' sense of responsibility for detecting fraud within organizations. Journal of Business Ethics, 149(4), 857-874. [online] Available at https://www.deepdyve.com/lp/springer_journal/understanding-auditors-sense-of-responsibility-for-detecting-fraud-vzjqcOJRWm [Accessed 18 Jul. 2018]

Larson Gross. (2018). Larson Gross | Accounting Resources for the Pacific Northwest. [online] Available at http://larsongross.com/toolkit/professional-organizations-for-the-accounting...