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
Saturday, September 22, 2007
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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