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Summary
Personal interest and greed make most accountants alter a companys financial statements to hide its actual profits. The hidden profits all go to a few mens pockets instead of the companys shareholders and members. Most accountants can either overstate the revenues or fail to record some of the expenses they incurred in their financial year to hide something for their benefit. In the same breath, other accounting practitioners may misstate or understate the assets and liabilities to create room for committing fraud in their accounting function. Genron was also not exceptional since she had trained as an accountant.
The financial analysis of Genrons reporting was scrutinized to note any issue that may be affecting the company. Markopolos reports on the companys financial analysis revealed $18.5 billion in understated LTC reserves (Stolowy et al., 2019). Understatement of some income is a method that accountants utilize in their effort to commit fraud. When they realize that much profit has been accrued and the shareholders are unlikely to realize it, they can understate some figures and adjust their reporting in favor of their mistake to benefit privately. Markopolos did statutory scrutiny filings given by the insurance firms. Consequently, they examined the policies and the data on the LTC premiums, which revealed that Genron had committed fraud.
When accounting standards were updated in 2018, Markopolos reports showed that around $10.5 billion were noted from the mismatch between GAAP and SAP reserves. Ordinarily, financial systems are uniform, and a slight update cannot result in a considerable difference, as noted in the Ge Company. This clearly shows that Genron was not doing some things right as required in accounting practice. Genron used complex financial reporting that investors did not easily understand. Of her complex financial reporting, some investors hated her (Stolowy et al., 2019). As stipulated in accounting practice, all accounting organizations should utilize uniform and simple financial reporting that is easily understood.
The Risk and Opportunities of Genrons LTC Business
Genron used the insurance policies that other companies had sold to their customers and began the business of reinsuring them. Most insurance companies failed to compensate their customers who brought different claims. Genron, therefore, took the risk of paying customers who brought various claims. Since other companies did not negate the customer, most customers withdrew and reinsured themselves with Ge (Stolowy et al., 2019). That made her accrue more benefits and grow her insurance company. With time she was among the best insurance company that most investors joined in investing with her.
As opposed to other insurance companies, Genron also took the risk of paying premiums for her customers. In most insurance companies, customers are expected to pay premiums for themselves. However, Genron was exceptional as she set the organization to be the one paying the periodical premiums for her customers (Stolowy et al., 2019). Probably, she established other methods within the organization where she would collect money from her customers and pay the premiums for them while still benefiting from them.
Genron is used to forecast the trends for both claims and premiums. Usually, the tips paid on a periodical basis determine what is delivered to a customer who has brought any claim to the organization. To be compensated, one has to pay substantial money for the premiums. Generally, what customers are reimbursed is proportional to the value of their terms and conditions for the insurance. Genron, therefore, is used to forecast the trend of the claim and the premiums paid to the customer to ensure she accrues the maximum benefit for herself while at the same time satisfying her customers through compensation of their claims.
Merits of Markopolos Allegation and Their Impact
Markopoloss allegation on Ge insurance was accurate, as the data has revealed. Carrying the investigation was also vital as it helped to know the companys financial position and curb the ways investors money was getting lost. For the occasion, the report revealed that Ges economic systems were complex and not easily understood by the investor. By noting that in the report, Genron was advised to utilize a more straightforward financial reporting system that is easily understood to enhance auditing and knowing the companys financial position. The report also obliged Ge leadership to invest in rebuilding the company to protect it from collapsing. The growth of every company is founded on leadership. The collapse or thriving of any organization is linked to its leadership. Building the administrations capacity is vital to safeguard the company and accrue more benefits.
The report also obliged Genron to increase the companys investment portfolio to increase its operations and benefits. She was further advised to increase her investment by at least $9 billion to boost the cash available for its operations (Stolowy et al., 2019). Without adequate capital, some processes are likely to close down. Also, the companys expansion to offer a wide range of services to meet the customers needs is not possible with inadequate money. Through the report given by Markopolos, Genron was required to increase her investment which will further lead to the growth and expansion of the company. Investors invest in a place where they see the growth of their money. Businesspersons are driven by returns and the benefits accrued at the end of the day. The report obliged Genron to invest the money in equipment and operations likely to yield high returns for the investors.
Why the Market Reacted so Strongly to Markopolos Allegations
The insurance field, just like any other field, tends to cover its members once found with flaws. As much as Markopolos claims were valid, some analysts in the market strongly criticized him for releasing the report to the public rather than sharing it privately to discuss and correct things where they were not suitable (Stolowy et al., 2019). Some exposures are crucial as they help the company or individual correct their flaws and never repeat them instead of remedying one privately. Subsequently, when one is exposed publicly, they tend to adjust their ways as fast as possible to counter the shame. Markopolos report allowed the general public to know everything about Genron to make informed decisions when choosing an insurance company to insure themselves with.
Assessing Ges response to Markopolos claim, Genron tried to fight for herself as much as possible. In the report, we note her saying that Markopolos was attempting to manipulate her market by making allegations that had no bases (Stolowy et al., 2019). She stressed that Markopolos report was meant to mislead people and tarnish her name because she was among the growing companies. She strongly defended herself, saying that the information Markopolos gave was inaccurate and inflammatory statements that had no bases for fraud. She added that the report was full of opinions, and Markopolos probably never understood accounting. However, such is expected from anyone defending their products and services to consumers. From the report, its clear that Markopolos used the policies and laid procedures while carrying out the auditing, and Genron was defending herself to safeguard her market.
Reference
Stolowy, H., Gendron, Y., Moll, J., & Paugam, L. (2019). Building the legitimacy of whistleblowers: A multicase discourse analysis. Contemporary Accounting Research, 36(1), 7-49.
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