After reading the Diagnostic for Risk Communication packet, I noticed that one section identifies constraints to consider when approaching my audience. In “The Tasks of Good Risk Communication Practice,” it explains the necessity for a business to “[earn] the public’s trust for its statements about the risks for which it is responsible” (Firschoff). Since my audience is company management which is responsible for reporting accurate financial statements to its stakeholders (ie. employees, investors, other firms, lenders), it is necessary to consider the types of questions which could be raised by the stakeholders as a result of the financial statements. After I identified this as one of the main components to my financial risk management effort, I needed to see how management would respond to such questions. These questions could be “How do I know that these financial statements were completed ethically?” or “Whose to stop me from investing into another company?” or “How do I know that company management is capable of understanding the complexity of the financial statements?”
After thinking about these questions, some of them may not have a solid answer. So, I developed my solutions, which were outlined in the memorandum, which I felt could best convince company management to be responsible when verifying financial statements. Implementing solutions such as stronger ethics policies or utilizing the services of Certified Fraud Examiners (CFE)’s could both increase management’s awareness of their own actions, and thus the trust in their stakeholders. I feel that these solutions will help reduce the risk of securities fraud, which is “more prevalent today than it was in 2002 when SOX was introduced” (Hawser). This indicates that earning the public’s trust is one of the most vital aspects in mitigating risks.
On page 132 of the class text, there is a table which illustrates how to analyze an audience in relation to consensus communication (Lundgren and McMakin). I noticed that the characteristic “Experience with other risks” and “Effect of the risk on them” are very important characteristics of my audience. Company managers may not all have experience with preventing or detecting securities fraud. While managers have seen the impact of fraud scandals, they may not have directly experienced its effects. Therefore, it is necessary to include research on the effects of the recent securities fraud scandals to help clarify what managers should do in preventing securities fraud. Also, company management may not feel that this risk is very important, even though management is also a stakeholder. If a manager reports false profits, they are held liable for fraud.
Perhaps managers feel that they have stable internal controls[1] around their money and assets. This is good because it implies that managers feel they are implementing strong methods for safeguarding their company’s assets. Therefore, overcoming these two characteristics of audience will take research on how management can deal with the risk and demonstrate how the risk effects management.
One final part of my project which I had difficulty with at first just from reading the texts was how to identify who I was in this issue. I needed to establish my authority in the financial risk management situation by observing constraints from my audience. Therefore, I felt that defining that I am part of a team of Certified Fraud Examiners helps create my authority. As a CFE, I am responsible for following a Code of Professional Ethics, which greatly increases trust in my audience. Knowing that I am communicating to my audience about the concerns with securities fraud ethically and accurately will help convince company management to adhere to my solutions.
[1] Internal controls are sets of checks and verification procedures that a company implements for managing portions of its assets.
Monday, October 22, 2007
Saturday, September 22, 2007
Financial Fraud may be a form of Consensus Communication
Financial fraud is a serious act that is not to be taken lightly by managers of an organization. My main goal is to communicate the risk associated with financial fraud to managers. However, this is not my only goal. I also hope to explain to my audience that in order for financial fraud to be prevented, managers need to communicate and work effectively with each other. They must come to a decision on the level of risk associated with financial fraud in their company, and manage this risk accordingly. Because it requires that managers, and possibly employees, work together to decide on how to manage this risk, I have decided that my topic best fits in with consensus communication.
Financial communication must have a strong information flow in order to be accurate. If there are barriers preventing this flow of information (such as bad employee ethics, or poor verification of financial reports) then the consequences could be disastrous. First, the audience must be aware of their company’s present situation. The financial information flows between accountants, the Chief Financial Officer, and the Chief Executive Officer. By establishing trust within individuals in an organization during this flow of financial information, it could greatly reduce a company’s financial miscommunication risks.
Due to previous financial fraud scandals, such as the Enron scandal, most company managers should be well aware of the effects these scandals had on companies. Therefore, my audience is currently well informed of the risks associated with financial fraud. Now, I need to help them analyze the risk associated with their company, and how to lessen the risk of fraudulent financial scandals in the future. My audience would most likely consist of highly educated officials because they are individuals capable of managing a business. The audience should also have great confidence with me. This is because I have done extensive research on the available options that managers have to use to lessen the risk of financial fraud. I have presented them with possible financial fraud reducing options in my Fact Sheet, along with ways to receive more information about these solutions.
One thing I observed is how the book we use for class, Risk Communication, identifies that there is no real useful source to aid my communication efforts. In Table 8-4, it identifies that the risk communicator must make direct contact with the audience in order to successfully inform and persuade them. I completely agree with this. While there is a history to fraud scandals, the best method to reduce the risk of financial fraud in a company is to present available resources, and have the company managers decide the best course of action to reduce their risk. I will need to motivate them, and possibly change their behaviors towards the situation. Financial fraud needs to be recognized as an act with serious consequences. By presenting this risk effectively as form of consensus communication, I feel that I can better convince my audience.
-MAH
Financial communication must have a strong information flow in order to be accurate. If there are barriers preventing this flow of information (such as bad employee ethics, or poor verification of financial reports) then the consequences could be disastrous. First, the audience must be aware of their company’s present situation. The financial information flows between accountants, the Chief Financial Officer, and the Chief Executive Officer. By establishing trust within individuals in an organization during this flow of financial information, it could greatly reduce a company’s financial miscommunication risks.
Due to previous financial fraud scandals, such as the Enron scandal, most company managers should be well aware of the effects these scandals had on companies. Therefore, my audience is currently well informed of the risks associated with financial fraud. Now, I need to help them analyze the risk associated with their company, and how to lessen the risk of fraudulent financial scandals in the future. My audience would most likely consist of highly educated officials because they are individuals capable of managing a business. The audience should also have great confidence with me. This is because I have done extensive research on the available options that managers have to use to lessen the risk of financial fraud. I have presented them with possible financial fraud reducing options in my Fact Sheet, along with ways to receive more information about these solutions.
One thing I observed is how the book we use for class, Risk Communication, identifies that there is no real useful source to aid my communication efforts. In Table 8-4, it identifies that the risk communicator must make direct contact with the audience in order to successfully inform and persuade them. I completely agree with this. While there is a history to fraud scandals, the best method to reduce the risk of financial fraud in a company is to present available resources, and have the company managers decide the best course of action to reduce their risk. I will need to motivate them, and possibly change their behaviors towards the situation. Financial fraud needs to be recognized as an act with serious consequences. By presenting this risk effectively as form of consensus communication, I feel that I can better convince my audience.
-MAH
Friday, September 21, 2007
Post # 2: Evaluating my Audience
The draft memo was an excellent way for me to focus my research efforts to uncover more information about how company managers communicate information to their investors and employees. What I discovered from this research was more information about the risks associated with communicating to employees and investors. Managers, which usually consist of an organization’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), are responsible and liable for submitting accurate financial documents to the public. If these financial documents have been corrupted, managers are the ones to blame. Therefore, I decided to focus my efforts on securities fraud. Securities fraud is the process of corrupting financial documents. I intend to explain the risks, detrimental possibilities, and methods for ending securities fraud.
For my audience, I have chosen company management. I feel that this is the perfect audience to explain the risks associated with committing securities fraud because this is usually were fraud occurs. Whether all managers are corrupt or other officials push them into falsifying profits, the end result lies with managers.
In my previous discussion board post, I spoke about how to communicate in the case of a financial crisis. Now I feel that a better approach may be to communicate how to prevent financial crises from occurring. There are multiple examples of securities fraud over the past decade. Please click here to learn more about some of these financial crises. Now I feel it is necessary to explain the consequences of financial fraud to managers. The effects are numerous. For example, in the Enron scandal, employees lost their retirement security and managers were sentenced to prison. But there are resources at their disposal to counter this negative outcome.
The resources I am using to support my argument that managers do have the power to prevent financial misconduct are outlined in my memo. I uncovered a huge amount of information, with various different methods that managers could use. One is to increase good ethical values in employees in companies by creating ethics programs. I feel that better ethical programs would help managers make better judgment calls in multiple situations, including financial reporting. For more information on how to create a better manager-employee relationship in an office environment, please click here.
I have also uncovered other ways that I feel could reduce the risk of securities fraud. One of them is to push for international financial reporting standards. Currently, financial reporting standards vary from country to country. In the United States the Generally Accepted Accounting Principles (GAAP), which is create by the Financial Accounting Standards Board, is used by all accountants. To eliminate the differences amongst countries, the International Accounting Standards Board is pushing for nations to adopt these global standards. According to Financial Accounting by Libby, Libby, and Short, some European nations have already adopted these standards (22).
I feel that the information I have found regarding the issues of securities fraud will allow me to draw my own conclusions about how it can be eliminated. Communicating these conclusions to company management is the next step.
For my audience, I have chosen company management. I feel that this is the perfect audience to explain the risks associated with committing securities fraud because this is usually were fraud occurs. Whether all managers are corrupt or other officials push them into falsifying profits, the end result lies with managers.
In my previous discussion board post, I spoke about how to communicate in the case of a financial crisis. Now I feel that a better approach may be to communicate how to prevent financial crises from occurring. There are multiple examples of securities fraud over the past decade. Please click here to learn more about some of these financial crises. Now I feel it is necessary to explain the consequences of financial fraud to managers. The effects are numerous. For example, in the Enron scandal, employees lost their retirement security and managers were sentenced to prison. But there are resources at their disposal to counter this negative outcome.
The resources I am using to support my argument that managers do have the power to prevent financial misconduct are outlined in my memo. I uncovered a huge amount of information, with various different methods that managers could use. One is to increase good ethical values in employees in companies by creating ethics programs. I feel that better ethical programs would help managers make better judgment calls in multiple situations, including financial reporting. For more information on how to create a better manager-employee relationship in an office environment, please click here.
I have also uncovered other ways that I feel could reduce the risk of securities fraud. One of them is to push for international financial reporting standards. Currently, financial reporting standards vary from country to country. In the United States the Generally Accepted Accounting Principles (GAAP), which is create by the Financial Accounting Standards Board, is used by all accountants. To eliminate the differences amongst countries, the International Accounting Standards Board is pushing for nations to adopt these global standards. According to Financial Accounting by Libby, Libby, and Short, some European nations have already adopted these standards (22).
I feel that the information I have found regarding the issues of securities fraud will allow me to draw my own conclusions about how it can be eliminated. Communicating these conclusions to company management is the next step.
First Thoughts on Financial Risk Communication
Writing for the Public will provide us (students) with a great opportunity to express risk information in our own unique form. After having our first class, it appears that many students come from multiple backgrounds of study. These various backgrounds, along with each student's unique method for communicating risk, will significantly enhance our overall experience of how to formulate and present risk in multiple areas.
Since I am a sophomore CBA student intending to major in accounting, I plan to use the skills acquired from class to learn how to communicate financial risk to various audiences. Along with this, I plan on tying in how to communicate in case of a disaster related to a financial crisis. Finally, I want to explore how auditors may communicate opinions to the public and a company's management after accessing a company's financial statements.
What I find interesting about the above issues is how they all can relate to each other. Think about it. Every company needs to report their financial information to the Security and Exchange Commission (SEC). But the SEC is not the only one. Investors, shareholders, managers or even undergraduate students analyzing 10-K forms over a ten year period to prepare a summary of graphs and financial spreadsheets for a project ( and yes, I did this myself last year as part of a group project) need to view this information, and be able to understand it.
However, it is not as simple as recording numbers over a set time period and sending it in to the SEC. ALL accountants must follow a set of financial reporting requirements known as GAAP (for more information, see this link: http://www.fasab.gov/accepted.html). So the GAAP principles, which maintain reporting standards, can actually be a constraint. Communicators, accountants, in this situation need to recognize that not all people will understand financial reports. This can pose a challenge for accountants reporting the necessary information in an understandable form. Exploring how accountants do this will be very interesting.
I have learned much of this information from my high school accounting classes, which are what stimulated me to pursue accounting as a career, as well as my first and current college accounting course. In the future, as I take new accounting courses each semester, I plan on increasing my knowledge of the risks associated with financial reporting. I feel that Writing for the Public will provide me with a foundation on how to effectively communicate these risks.
Some may think that these reporting standards are to overwhelming, and may limit a person's ability to understand a company's finances. But the standards need to be met. Instances such as the Enron scandal prove how failing to meet the expectations of the Financial Accounting Standard Board (FASB) can immediately destroy a company and the lives of its employers (for more information regarding the Enron accounting fiasco, please check out this link: http://encarta.msn.com/encyclopedia_701610398/Enron_Scandal.html). I believe this event led to the creation of the Sarbanes-Oxley Act, which called for significantly stricter financial reporting requirements.
Now it can be seen why communicating financial risk to investors and stakeholders using legally correct methods is an absolute necessity. If done incorrectly it can affect the lives of a company's employees, the people who use the company's products, other firms who rely on the company for resources, etc. The stakes are high for correct financial risk communication. So it will be interesting to see how communicating a company's financial information can affect multiple people and companies.
Since I am a sophomore CBA student intending to major in accounting, I plan to use the skills acquired from class to learn how to communicate financial risk to various audiences. Along with this, I plan on tying in how to communicate in case of a disaster related to a financial crisis. Finally, I want to explore how auditors may communicate opinions to the public and a company's management after accessing a company's financial statements.
What I find interesting about the above issues is how they all can relate to each other. Think about it. Every company needs to report their financial information to the Security and Exchange Commission (SEC). But the SEC is not the only one. Investors, shareholders, managers or even undergraduate students analyzing 10-K forms over a ten year period to prepare a summary of graphs and financial spreadsheets for a project ( and yes, I did this myself last year as part of a group project) need to view this information, and be able to understand it.
However, it is not as simple as recording numbers over a set time period and sending it in to the SEC. ALL accountants must follow a set of financial reporting requirements known as GAAP (for more information, see this link: http://www.fasab.gov/accepted.html). So the GAAP principles, which maintain reporting standards, can actually be a constraint. Communicators, accountants, in this situation need to recognize that not all people will understand financial reports. This can pose a challenge for accountants reporting the necessary information in an understandable form. Exploring how accountants do this will be very interesting.
I have learned much of this information from my high school accounting classes, which are what stimulated me to pursue accounting as a career, as well as my first and current college accounting course. In the future, as I take new accounting courses each semester, I plan on increasing my knowledge of the risks associated with financial reporting. I feel that Writing for the Public will provide me with a foundation on how to effectively communicate these risks.
Some may think that these reporting standards are to overwhelming, and may limit a person's ability to understand a company's finances. But the standards need to be met. Instances such as the Enron scandal prove how failing to meet the expectations of the Financial Accounting Standard Board (FASB) can immediately destroy a company and the lives of its employers (for more information regarding the Enron accounting fiasco, please check out this link: http://encarta.msn.com/encyclopedia_701610398/Enron_Scandal.html). I believe this event led to the creation of the Sarbanes-Oxley Act, which called for significantly stricter financial reporting requirements.
Now it can be seen why communicating financial risk to investors and stakeholders using legally correct methods is an absolute necessity. If done incorrectly it can affect the lives of a company's employees, the people who use the company's products, other firms who rely on the company for resources, etc. The stakes are high for correct financial risk communication. So it will be interesting to see how communicating a company's financial information can affect multiple people and companies.
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