Tyco International Accounting Issues
There is compelling evidence that past performance records at Tyco did not reflect the actual picture of the company’s status. Multiple reports have given strong indications of irregular accounting practices. The revenue and profit reports were inflated by some strategic accounting practices that falsified reports about the fiscal status of the company with the view of showing some kind of consistency in the company’s general performance. According to some analysts, the reports posted by the company would show significant variations if the accountants were to adopt conventional accounting practices.
One of the most notable accounting malpractice employed by the company involved the low attrition rate, which were written off at a remarkably slow pace. The consequence of this accounting misnomer was a significant inflation of the profits as reported in the company’s financial records. A consistent pattern of this accounting practice had the effect of giving the shareholders the wrong kind of impression regarding the performance records of this company (Maremont, M and, Laurie Cohen 12 a).
The markets were also deluded into believing in the falsified accounting records of the company. According to financial analysts, the amount of money involved in the slow attrition accounting practice was the major driving factor. For instance, it was reported that the company spent large sums of money in purchasing accounts from dealers. An estimate of 1.3 billion dollars has been given as the amount of money used by the company to purchase the accounts in 2001. Major discrepancies have also been seen in the mismatch between the posting of assets acquired and the selling prices that were attached to the same. This aspect has often been cited as a case of deliberate falsification of information intended to paint an artificially positive picture about the performance of the company (Bragg 23). One such case involved the purchase and sale of Anglo Seal division.
Anglo Seal was bought for about 20 million dollars according to the information posted in the company’s accounting records. In the space of time of one year, the same asset was sold off at a price of 111 million dollars. Some analysts argue that the real losses incurred by Tyco could be even much higher given the fact the team of accountants and lawyers who worked through the companies records overlooked or could not access some sensitive omissions and commissions due to weaknesses of evidence (Maremont and Laurie 10 b).
According to analysts, it is not practically conceivable how an asset could appreciate to nearly eight times its purchase price within the short time of a year. The obvious intention was to bring down the value of expenses, while adjusting upwards the level of sales and revenues. As a result, the company presented itself as particularly robust in terms of growth. The danger of such accounting practices is that they are not sustainable in the long run. They tend to shield the company’s failings from the shareholders and the markets.
According to some analysts, such practices have the capacity of bringing down companies because all safeguard measures are rendered useless in the face of irregular and cosmetic accounting practices. The irregular practices often shield the companies from the indicators of possible slump of a slackened performance. Defenders of Tyco’s book-keeping methods have argued that any alternative ways of accountancy could not significantly alter the state of accounts as reported by the company (Maremont and, Laurie 12 c )
They rely on the reports of internal auditors who argued that few things would change in terms of performance regarding the company’s overall growth strategy. It would be appropriate to consider the weaknesses of the irregular accounting practices in comparison to similar practices that often ended up in total failure. The collapse of Meryl Lynch and other famous firms were attributed, in part, on the reliance on cosmetic accountancy aimed at boosting the standings of the companies on the stocks market. One of the aspects of aggressive accounting was the deliberate manipulation of revenues to reflect higher figures than the actual picture. There were also indications that Tyco accountants engaged in accounting malpractices by relying on the financial reserves to meet non-business related expenses. The accounting reports also indicated that the company accountants did not report on some specific expenses (Maremont and Laurie 3 d).
The failure, according to analysts, should not be treated as cases of oversight or errors of communion. Rather, the analysts contended that the failure to post the expenses was a strategy to increase the profit levels of the company by manipulating the levels of expenses incurred. Other accounting malpractices included irregular bonuses awarded without regard to the set out rules and procedures. In the long-term, these errors had the effect of portraying misleading information about the company’s profit margins.
Multiple reports showed that the deliberate misinformation of information about the company’s financial performance was generally aimed towards retaining a high profile on the stocks market. In this manner, the company sustained a trend of cosmetic growth that could not be backed up by empirical assessment. In the laws of accountancy, it is important to consider the value of timing in the determination of matters of accuracy. Such issues revolve around recognition of revenues and the posting of losses. Reports produced by multiple financial analysts showed that the accounting practices at Tyco were specifically designed to offer aspects of aggressive accounting.
The desire to report higher practice margins and give an impression of consistent growth encouraged the cultivation of irregular accounting practices, which were particularly designed to offer competitive advantages to Tyco. As a result of these practices, Tyco’s market prices maintained a consistent growth as the market bought into the effects of the strategies devised by the irregular accounting practices.
It is important to consider the fact that some of the issues detailed in the financial reports were strong indications of the fact many of the issues of related to financial practices are marred in inconsistencies. Lack of consistencies and irregularities reported by the various financial analysts on the matter indicate that it is particularly necessary for standardization of financial practices in order to streamline the practices. In such a manner, it would be possible to detect aspects of improper accounting practices in line with their potential to create adverse effects on financial establishments and financial systems.
Furthermore, it is possible to place the aspect of poor documentation within the general aspect of accounting malpractices. Poor documentation makes it difficult for audits to be conducted on some of the suspected fraudulent on improper aspects of financial management. Further analyses on the levels of irregular financial accountancy at Tyco showed that the levels of growth of the company should be assessed in light of the levels of consistency with the accounting practices. Within the periods that the company experienced inconsistencies in the level of growth, certain features of growth have indicated a growing preference for systems that emphasize on conventional approaches. Market pressure has been cited as one of the driving factors that lead firms to succumb to the pressure of financial malpractices.
According to reliable estimated, the financial malpractices at Tyco cost the company close to 1.2 million dollars. The loss is attributed majorly to the fact that crucial information on losses was concealed in misleading details. Some analysts have argued that it is not entirely easy to determine the real extent of financial improprieties that took place within the company because most of the issues outlined were not included in the probe. As such, it remains imprecise to explore the real magnitude of the financial irregularities. In mitigation, Tyco has variously insistence on the fact that its financial practices could not be regarded in the strict sense as financial fraud. Instead, the company has insisted that the alleged financial irregularities in its systems are largely born out of the fact that it engages in flexible accountancy.
The issues raised by critics could be expanded to give a bigger picture on some of the unconventional practices that often occur in the corporate world, and which are meant to offer cosmetic information to concerned groups and the outside world. However, questions that remain unanswered revolve around the level of regulations that must be injected in the corporate world (Maremont and Laurie 16 e). For instance, the standardization of accounting practices has often been regarded as the most appropriate safeguards that could be used in forestalling such unconventional accounting practices. In essence, it is possible to regard the past happenings at Tyco as an indication of the possibilities of high-level malpractices that could impact negatively on the corporate sector. In the global business environment, financial systems are often interlinked in ways that determine stability, performance, and consistency. A disruption at any point within the global chain of business will often create far-reaching ramifications to other related systems.
This would imply that the shortcomings in Tyco’s accounting practices could have adverse impacts on the market particularly with regard to the level of confidence of the investors. The challenge lies in the fact that multinationals and conglomerates such as Tyco operate in very complex business environment and varied geographical spaces that are governed by a great diversity in their accounting practices. The standards of assessing merit or detecting improprieties are therefore difficult and could have a mismatch of methodology. It is in line with this challenge that Tyco has sought to defend its practices as an aspect of diversity in international trading practices.
Confounding accounting practices have the potential of weakening the markets by bringing down the levels of investor confidence. In the specific case of Tyco, recent reports have shown that the company has suffered significantly on account of market confidence. Such effects often create negative impacts on a wider scale and make competitors to eat into the company’s niche market. According to some financial analysts, failure by governments to create sufficient safeguards to check against tendencies of irregular accounting procedures could result in the kind of financial crises such as happened in recent financial meltdown. However, such observations come into direct conflict with the discourse of liberalization whose central theme is the lessening of regulatory mechanisms on companies and businesses.
Bragg, Steven. Accounting Best Practices. New York: John Wiley & Sons, 2010
Maremont, Mark and Laurie, P. Investors in fear of the enron effect: WALL STREET: Mary chung says the collapse of the energy giant has prompted a closer look at accounting practices. Financial Times, 2002. Web. 13 Oct. 2012.
Maremont, Mark and, Laurie, Cohen. Probe of tyco’s accounting hits its stock. Wall Street Journal, 2002. Web. 13 Oct. 2012.
Maremont, Mark and, Laurie, Cohen. Tyco’s internal inquiry concludes questionable accounting was used. Wall Street Journal,2002, Web. 13 Oct, 2012.
Maremont, Mark and, Laurie, Cohen. Business: Not guilty, your honour; tyco. (2003, Jan 04). The Economist, 366, 54-52. Retrieved from http://search.proquest.com/docview/224038299?accountid=10181
Maremont, Mark and, Laurie. Questioning the books: Tyco is likely to report new woes. Wall Street Journal, 30 Apr. 2003. Web. 23 Oct. 2012.
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