What are the negative effects of accounting scandals on the government Essay - 1

What are the negative effects of accounting scandals on the government - Essay Example Many governments have lost a lot of money on unscrupulous individuals; a fact that calls for a need for developing stringent control procedures that do not put the state employees in positions of committing fraud (Byun & Roland-Luttecke, 2014). According to Ball (2009), financial reporting is one of the root causes of accounting scandal. The rationale for financial reporting is to give financial information about entities that may be of use to the potential lenders, investors, creditors, and the government to guide it in decision-making. The state decisions may include buying or holding equity or providing guidance on whether to borrow money for development. Many cases exist where organizations and government officials exhibit discredited behavioral patterns. Primarily, there are three categories of people in an organization who engage in financial scandals. The dishonest individuals range from chief financial officers who always conceal their true picture and the performance of the government department to maintain their status and to keep aside personal income for their benefits. The middle and lower level of management always falsify information related to their area of work or responsibility (Enofe, 2010). The main aim of engaging in this form of financial accounting is to hide their poor performance abilities or to gain undeserving bonuses, which incurs losses to the government. At the organizational level, the institution can give false financial statements for getting access to credit facilities or inflating the prices of properties that the government is planning to sell. Whereas many governments have reviewed their financial auditing systems to tame accounting fraud, many frauds that have arisen from manipulated audit results are great indicators that financial auditing cannot be solely relied on as a fraud detection strategy. Fraudulent reporting, which is the major form of financial scandal can have negative consequences that may hurt not