It is the latter option that has reared its ugly head once more in research, with Henry Friedman’s study – titled “Implications of power: When the CEO can pressure the CFO to bias reports” – citing that CEOs with significant “power” often “compromise the independence of a CFO who is responsible for reports upon which performance is assessed.
“There has been significant discussion about who is ultimately responsible for accounting manipulations. At the same time there has been a big push to increase punishment for executives that are anywhere near wrongdoing, which is usually the CFO. One party may be taking the actions, but it’s the other one that caused them to act.”
Friedman suggested the research would have implications for the interaction between the CEO and the CFO in terms of financial reporting quality that offers a “lens” into the motivations behind accounting manipulation.
For example, the research findings suggested boards could avoid accounting scandals by putting the proper incentives and safeguards in place when a CEO and CFO are hired, rather than attempting to force disincentives after the act.
In fact, Friedman argued that the increase in punishment against CFOs that manipulate accounting can often “backfire.”
“The research indicates that harsher punishments against CFOs could actually lead to lower financial reporting quality,” Friedman said. “Increasing the punishment or costs to the CFO just forces them to figure out new ways of getting around getting caught.”
Talking about scandals, FIFA is hoping that years of corruption and turbulence will finally be brought to an end by the election of a new president. But according to former football player Louis Saha, the move won’t solve anything.Image: ShutterstockBy Shané Schutte
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