Explain and show examples of Accounting frauds

Accounting Frauds
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Minefield -Asset Valuation
About what emerges out to be an essential component, an asset refers to that component that possesses its present or intrinsic values. An example here is either cash or any other item that may be applicable towards a generation of revenues. A building may aid in the production or manufacture of a product or also the inventory may be put on sale for profit generation (Zyla, 2013). The performance of assets often takes place on costs that are not beyond the approximated amortization or depreciation. Similarly, the depreciation itself must have an estimation of its life that is of value. However, the present latitude that the administration utilizes in making such approximations may at times lead some questions concerning the motivation following the change of the estimates. An example, in this case, is the Delta Airlines that made revisions on the value life of the aircraft among its fleets for two times consecutively within a period of ten years (Berman, 2006). During all these occasions, the resulting change led to the creation of a quantifiable increment in the profits recorded. So the question that arises seeks to know whether these modifications came as result of motivation through any real or exact change in the life span of the plane, or with the intention that can compete effectively with accounting methods or also due to motivation from any other unknown reason altogether.
Valuation, pricing plus other financial issues are the key factors in the determination of the success of any venture.

Valuation itself remains to be one of the essential factors in the determination of the success or failure of a deal. Also, a major factor to take into consideration when evaluating on the cost of acquisition, is the urge to have the inclusion of the control premium. The control premium has an average of 20 to 40% of the undistributed price of shares of the publicly listed company and has always been consistent within this the range for several years.
Many at times, companies that utilize methods of accounting towards keeping of the research and development at the cost of a reduction in earnings made where at last they often end up this issue of the minefield (Michel-Kerjan & Slovic, 2010). A major approach, in such scenario, is the where the process of acquisition has occurred, or the objective is to ensure writing off of each component of the R&D that progresses within the company acquired. The other case is the conduct of R&D based on investments with partners, where the aim is to evade cost treatments as the present expenses. In any a case an analyst makes an interpretation of this kind of moves like that which has its motivation because of desire in the management of earnings, companies may on a serious note end up damaging their hard earned reputations within the financial or capital markets (Lomax & Raman, 2007). An example, in this case, is Elan, a company that handles pharmaceuticals where through the SEC reviews, indeed instilled fear to a section of analysts and investors while trying to utilize this type treatment on the R& D costs. One of the board members at the company might have done well when it comes to asking about the accounting practices that were utilized by the company, as those practices that had a chance in ensuring the completion of earnings picture for the esteemed shareholders.
Minefield- Derivatives
So many derivatives exist, and many are also being invented with time. A derivative itself defines the financial status quo in relation to the asset in place. In comparison to stock, bond or real estate, derivatives are always fleeting in a very short span (Horn, 2015). Also, derivatives are powerful subjects since they lead to bulging with the leverage or a slight change in the current price of an asset. The change, in this case, is however, bigger than that change that takes place on the value of the derivatives.
The majority of derivative explosions take place in circumstances where a trader believes that he or she has knowledge in the co-relationships a combination of derivatives and learns. On the other hand, the application of derivative towards the management of financial risks needs a lot careful and continuous analysis or evaluation (Michel-Kerjan & Slovic, 2010). The complex financial tools, in this case, were initially known to have implications in the collapse of Barings Bank thus leading loss of the confidence in the banking sector as well also almost in the bankruptcy of Orange County, California (Michel-Kerjan & Slovic, 2010). However, the increased awareness among the stakeholders involved has not resulted in them finding it easy for those who are not experts to provide their judgment. Derivatives for sure, have all along been applicable in hedging the associated commodity prices, fluctuations in foreign exchanges and also the interest accrued on debts (Lomax & Raman, 2007). However, the major problem among the board members, directors, and esteemed shareholders are the time when they realize that the risks they have are much heavier when compared to what it is capable of mitigating.
In the case of a German conglomerate Metallgesellschaft, the equation of risk surfaced on the incorrect side. The energy group of the company had entered into contracts with customers for sale of petroleum at those prices that were fixed from the year 1992 for a maximum ten year period (Lomax & Raman, 2007). Since the company stood a chance of realizing losses if prices of oil were increased, it then made a decision of hedging away the risk through the use of the stack strategy of hedging that in this case utilizes the derivatives. Upon doing the same, the company ended up stacking the deck that was in the opposite direction such that upon the sudden decline of the price of oil, the loss began to mount (Horn, 2015). At long last, the situation made the company spend close to $1.5 billion thus leading to the observation or the identity of Metallgesellshaft as a major financial derivative.
Derivatives indeed have wide applications in all sorts for various reasons and the same time; it has a substantial potential impact on the income among the companies. In this regard, companies need to carry continuous scrutiny of their use of derivatives so that they can ensure the responsible management of risk (Berman, 2006), determination of if the achieved or the failed gains and losses need have their inclusion in earnings. Also, the same they need to factor in the risks and accounting treatments that are well disclosed so that it may be easy for the shareholders to have the knowledge on the likely impact out of these derivatives. However, the question that arises then is the manner by which a hawk-eyed manager may defend the shareholders’ interests based on this notion.
References
Berman, B. (2006). Making innovation pay (1st ed.). Hoboken, N.J.: John Wiley & Sons.`
Horn, R. (2015). It’s a minefield (1st ed.). Victoria, BC: Friesen Press.
Lomax, W. & Raman, A. (2007). Analysis and evaluation (1st ed.). Oxford: Butterworth- Heinemann.
Michel-Kerjan, E. & Slovic, P. (2010). The Irrational Economist (1st ed.). New York: PublicAffairs.
Sherman, H. & Young, S. (2016). Tread Lightly Through These Accounting Minefields. Harvard Business Review. Retrieved 1 December 2016, from https://hbr.org/2001/07/tread-lightly-through-these-accounting-minefieldsZyla, M. (2013). Fair value measurement (1st ed.). Hoboken, N.J.: Wiley.