Accounting Business Analysis Fraudulent Financial

Question: Discuss about the Accounting Business Analysisfor Fraudulent Financial. Answer: Introduction The report is about Roshill, one of the companies that operate around 150-hectare landfill site. The company is said to be operating a garbage collection business. This has permitted the firm to locate good potential landfill site, getting all permits required as well as acqyuiring small rubbish collection businesses in providing captive customers for collecting from other contractors and for landfill. With these considerations, this paper presents analysis of the main issues being experienced in Roshill in terms of fraudulent financial reporting, independence of auditors as well as corporate strategies in order to provide recommendations on whether Sam should sell his shares immediately or whether he should wait. Discussion and Analysis Fraudulent Financial Reporting The company is currently performing poorly in terms of financial position due to the fact that after reclassification of some of the financial statements items to expenses, it is said to report huge net losses over the years. In addition, from this case, it is evident that Roshill was actually using fraudulent financial reporting before the announcement of the change in its accounting policy. This is based on the fact that by changing its accounting policy, its share prices decreased from around $31 to $11 within a day. This also resulted to reinstatement of the companys net income for the year 2015 to net loss. There was another fraudulent financial reporting where by the capitalization formula used by the company resulted in around $4 million of the costs having been capitalized twice; hence, lowering the 2015 expenses and resulting in an increase in its reported profits. This is totally acceptable and unethical for any company since this could give a false picture of the financial performance of the company; attracting more investors to invest in this firm. Furthermore, there is a fraudulent financial reporting in this case where by the company capitalized $43 million of the indirect costs incurred in obtaining rubbish collection and the $27 million in the start-up costs which were supposed to be classified as expenses. This act resulted in falsified financial data of the company; hence, swaying potential investors to invest in the company. From this case, it is evident that the companys act of keeping overhead expenses low and gross profit margin high is another sign of fraudulent financial reporting since it resulted in untrue figures and picture of the companys performance. In addition, the accounting act of accounting for the indirect costs for the landfills as well as other properties was a fraudulent financial reporting since it resulted in exaggeration of the companys after-tax earnings by around $362 million and a reported $149 million in profits for the 2009-2015 which was not the actual figures. Auditors Independence In addition, in this case, it is evident that auditors independence was interrupted by the CEO. This is based on the fact that the auditor and CFO had been partners in auditing the companys financial statements, before Kelly became the CFO. In essence, there is interruption of auditors independence in that while the auditor was conducting their audit work, they had to consult Kelly who was at one point the audit partner before becoming the CFO. This resulted to interruption of the auditors independence while conducting their audit work. There is also a decrease in shares to less than $7 as a result of change in auditors. This decrease might have been as a result of fear of shareholders that the audit report could find out that the company was incurring huge losses; hence, resulting in significant decrease in share prices to very low levels. Corporate Strategies Issues There is also some corporate strategies issues where by investors were unaware of the companys accounting policies for the indirect costs that were not disclosed in the accounting policies footnotes. Failure to disclose the accounting policies resulted to poor corporate and accounting strategies since it resulted in exaggeration of financial data unnoticed by investors. Nature of the Business Currently, the company is currently experience some financial difficulties with in its businesses. In essence, despite the company adopting expansion strategy in acquiring rubbing collection businesses, the business is a bit involving and costly; making the company to sell around 26% of its take for $10 million in IPO. This has made the company business to be operations instead of being developmental. The business is also said to be experiencing a huge loss over the period. It is also Conclusion In conclusion, it is evident that Roshill has been using fraudulent financial reporting over the past few years and particularly in the financial year 2014 and 2015. This mainly as a result of huge losses that were reported after reclassification of some of the items in the asset accounts as expenses. In addition, it is evident that Roshill operations were all marked with numerous challenges; hence, increased losses. Recommendation Based on above analysis and with the fact that Roshill reported a net loss instead of profit for the financial year 2015 and given that its share price decreased from as high as $37 in 2016 to around $4 per shares, it would be advisable for Sam Miller should not sell off all his shares immediately. This is based on the fact that by selling his shares immediately, he is likely to incur some huge losses as a result of this decrease in share prices. In essence, Sam should not sell his shares immediately but should at least wait for the audit report in order to get an idea whether there is any probability of price of these shares to increase in future. References Carcello, J. V., Nagy, A. L. (2004). Audit firm tenure and fraudulent financial reporting.Auditing: A Journal of Practice Theory,23(2), 55-69. Umar, A., Anandarajan, A. (2004). Dimensions of pressures faced by auditors and its impact on auditors independence: a comparative study of the USA and Australia.Managerial auditing journal,19(1), 99-116.