This year, we have seen some accounting scandals involving hugely popular companies. These biggest accounting scandals of 2014 rocked the world of finance and accounting and at the same time reminded us about the importance of maintaining good accounting practices. It’s important to be informed about these so that we can be warned about what not to do.

Tesco’s Accounting Scandal

Tesco, Britain’s most popular grocery and retail megastore, is known as the second-largest multinational retailer in the world. However, due to strong competition in the European market, the company’s profits have been progressively declining in the past few years. As if that is not enough to affect Tesco’s standing, their recent accounting scandal contributed to further damaging their reputation. It was revealed that Tesco has allegedly been overstating their incomes and understating costs. They had initially overstated their annual profit by £250 million, which is an overstatement of nearly 25%.

Olympus Corporation’s 13-year Fraud

Last April, Olympus Corporation, the Japanese camera and endoscope manufacturer, was sued by six banks for damages resulting from false financial statements filed from the fiscal year 2000 to the first quarter of the fiscal year 2011. The banks suing Olympus for a total of $273 million or 27.9 billion Yen in damages include Mitsubishi UFJ Trust & Banking Corp., Master Trust Bank of Japan Ltd., Japan Trustee Services Bank Ltd., Trust & Custody Services Bank Ltd., Nomura Trust & Banking Co., and State Street Trust & Banking Co. It is said to be the largest amount sought in civil lawsuits against the company.

Accounting Irregularities at Penn West

One of the biggest accounting frauds of 2014 is the accounting irregularities at Penn West. Penn West Petroleum Ltd. was just beginning to show results from a restructuring program, led by the new president and CEO, David Roberts, when he received reports in July stating the existence of irregularities in accounting practices that have been going on for several years. A large number of retail investors have been claiming operating expenses as capital expenses, which boosted cash flow and influenced the company’s stock price. They made the news public on July 29 stating that the individuals responsible for the said irregularities have been fired. On September 18, the company restated its results upon discovering the misclassification of $300 million worth of expenses.

Mobily CEO Suspended for Accounting Errors

Saudi Arabia’s telecommunications company, Mobily, suspended its CEO, Khalid al-Kaf, effective November 21, after the company was forced to restate 18 months of earnings due to accounting errors. An article on Bloomberg stated that Mobily’s 2013 financial statements were affected by an error in the timing of revenue recognition from a promotional program. As a result, the company’s shares plummeted 30 percent since Oct. 30 while third-quarter profits dropped more than 70%.

Vatican Bank Scandal

Among the biggest audit scandals of 2014 is the Vatican Bank Scandal. The Vatican Bank has been faced with scandal in the last few years. Most recently, an exclusive report by Reuters, stated that a Vatican prosecutor has frozen 16 million euros in the bank accounts of two former Vatican bank managers, and their attorney, for stealing money in 2000 from the sale of 29 Vatican-owned real estates. Between 2001 and 2008, a total of €57 million were pocketed by ex-bank President, Angelo Caloia and ex-Director General, Lelio Scaletti, together with their legal consultant, Gabriele Liuzzo.

These recent accounting scandals give us insight on the vastly negative impact of fraud, and accounting errors on a company, no matter its size and popularity. They not only lead to a decrease of the organization’s stock value but also to the decrease in profits as well as in creating damage to its reputation.

Further, we’ve learned lessons on the importance of hiring upstanding employees, who will contribute to the improvement of the company instead of lead it to its demise. It also goes to show how imperative it is to maintain good accounting practices and establish efficient accounting systems in our organization.

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