Module2: Discussion on Recent Accounting Scandal
Over the years,accounting frauds have been reported from companies that manipulatetheir financial statements to win the approval of potentialsinvestors. Despite the prison terms and fines charged, accountingscandals are frequent with the rapid technology advancement inbusinesses. This essay discusses Marrone Bio Innovation companyfraud, fine charged, and how the scandal could have been avoided.
HectorAbsi was the CEO of Marrone Bio Innovation in 2014 when it wasalleged to have been involved in accounting fraud by the Security andExchange Commission (SEC). In 2014, Marrone Bio restated itsfinancial statement of 2013, reversing more than $2million (Cohn,2016). Absi inflated the company’s revenue by offering an‘inventory protection’ to the distributors. Marrone Bio Companyallowed distributors to return all the unsold products. Moreover,Absi ordered his subordinates to acquire false shipping documents andsales to inflate the company’s revenue. Absi benefited from hisscheme by obtaining stock sale proceeds and more than $350,000bonuses.
Absiwas required to pay $1.75 million as penalty, to settle SEC’scharges (Cohn, 2016). In addition, Absi was dismissed from MarroneBio Company. Dismissal of Absi was necessary as he dissolved theinvestors trust as well as threatened the long-term success of thecompany. Statistics indicate that after the fraud incident, MarroneBio Company’s stock price dropped steadily by more than 44% (Cohn,2016).
How the Fraud Could Have Been Prevented
MarroneBios Company was capable of preventing the accounting scandal throughthe assistance of an external auditor. An independent or internalauditor is subject to manipulation due to his/her greed. The role ofrevenue management should not have been left to a sole entity butdiscussed by the key stakeholders and managers to minimize chances offraud. Consequently, many frauds can be attributed to a company’smanagement failure.
Cohn Michael (2016). Pesticide Company charged with accounting fraud.Accounting today: February 19, 2016. Retrieved from:http://www.accountingtoday.com/news/pesticide-company-charged-with-accounting-fraud