Chapter 22

The Impact of Accounting Scandals and Creative Accounting

Michael Jones


This chapter looks at the aftermath of accounting scandals. I relied upon the factual accuracy of the material from individual chapters for the international background, while Chapter 7 provides a more longitudinal perspective.1 This is important as the effects of accounting scandals are often cumulative, stretching over long time periods.

One of the major impacts of accounting scandals is that consequences often stretch far beyond the immediate confines of the firm. The impact of accounting scandals and, more pervasively, creative accounting can thus be divided into the short-term, immediate effects on those involved and longer, more diffuse effects. The immediate consequences are that the company itself often either collapses, is taken over or at the very minimum its share price slumps and investors lose money. When a scandal occurs there are usually casualties: both innocent and guilty. There is usually an immediate outcry and calls for something to be done. Often the guilty are punished, more rarely the innocent are compensated in some way for their financial loss. Those culpable in the accounting scams are often punished. This can mean individuals like Jeffrey Skilling, Bernard Ebbers and Bernard Madoff in the USA, who are often fined or sent to prison. However, it can also mean sanctions against the auditors. Mostly they are, as with the Spanish cases, fined. However, in ...

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