Scandals of Auditing

Scandals of Auditing
Student Name
Institutional Affiliation
Scandals of Auditing
Introduction
Ethical auditing ensures that organizations present accurate financial statements to stakeholders. In that vein, investors and other financial information users are not mispresented and misled by the annual reports. Audits should be performed independently and systematically to present the company’s fair and accurate value and prevent fraud or unethical reporting. Auditing plays a critical role in ensuring that the firm enhances stakeholder’s confidence about its numerical figures and information. From a societal viewpoint, firms must integrate ethical practices within the business success via prudent decision-making processes. This report evaluates Fuji Xerox New Zealand’s (FXNZ hereafter) auditing scandal via various critical lens including a discussion of the organization, what transpired, one example of fraud within the company and consequences to various stakeholders, the involved auditors and their role within the scandal, and the perpetrators’ current situation.
The Organization: Fuji Xerox New Zealand
FXNZ is a consolidated subsidiary of FUJIFILM Holdings Corporation (FH). It is a global brand synonymous with business leadership and document services. In terms of its mission, the company provides state-of-the-art business processes and enterprise document solutions, digital printing technologies, as well as outsourced services. The firm is committed to facilitating customers in solving complex document-related challenges and streamline their processes and workflows. Fuji Xerox Co., Ltd was founded in 1962 as a joint venture between Xerox Limited (25 percent) and FH (75 percent). FXNZ is part of the global enterprise group offering market-leading business as well as document management services. Accordingly, FXNZ forms part of the Asia-Pacific region, and thus its operations are coordinated from Singapore.
The Events in General
When closing its fiscal year accounts culminated in March 2017, FH discovered that two of FX’s overseas sales affiliates, FXNZ and Fuji Xerox Australia Pty. Ltd, has participated in accounting malpractices in its previous business dealings. An inquiry into the matter by the Independent Investigation Committee indicated that FXNZ had engaged some accounting malpractices in the financial period for 2015 and 2010. In September 2009, an internal audit by FX’s Asia Pacific Operations (APO) noted some lease contracts at FXNZ that failed to meet appropriate accounting practice criteria. In July 2015, an email contending accounting irregularity, in addition to overstated revenues for the firm’s leased equipment, was shared with executives and other parties at FX. A special audit revealed inappropriate transactions, but this did not make it to the FH’s annual reports. In September 2015, APO notified FXNZ that it had prohibited the employment of inappropriate lease contracts, but the latter failed to revise its accounting handling related to signed contracts. In Feb 2016, FXNZ Chief Executive Officer was replaced, and the incoming Chief Finance Officer (CFO) reported FXNZ’s ambiguous accounting activities and bad debts. In September 2016, a New Zealand media outlet published alleging the company’s irregularities, including inappropriate sales techniques.
In October 2016, the FXNZ deputy president wrote to the FH’s president concerning the alleged accounting irregularities, rubbishing the article’s arguments. FXNZ’s audit firm initiated the process to assess the company. In January 2017, FH’s president instructed FX’s president to investigate the matter and provide a clear response. In April 2017, FH directed an independent investigation committee to examine the issues, leading to confirmation of inappropriate accounting practices in the subsidiary (Fuji Film Holdings, 2017).
Example of Fraud in FX
The company’s auditors engaged in “inappropriate accounting of early sales recognition,” involving leasing agreements that the Australian and New Zealand subsidiaries entered into with customers, according to an independent report outline (CFO Innovation Staff, 2017). Before the contracts could be recorded as capital leases, there needed to be a reasonable expectation for leasing fees, minimum payment recovery and no uncertainty that extra costs could be impossible to recover. Contracts that failed to satisfy this criterion were nonetheless reported as capital leases. As a result, many receivables could not be recovered within many transactions, notably because the copy volume failed to attain the targets at the time of implementing the contract and the minimal usage payment was dubiously set. The practice created bonuses and commissions for staff and executives (CFO Innovation Staff, 2017).
Sales f...