Accounting fraud, business failure and creative auditing: A microanalysis of the strange case of the Sunbeam Corporation

Abstract

This article closely examines the Sunbeam Corporation’s path to failure and explores the reasons for its singularity. From the analysis of US fraud cases included in the UCLA-LoPucki Bankruptcy Research Database, this corporate case appears as an outlier. For Sunbeam, the time-lapse between fraud disclosure and its final bankruptcy is the longest of the entire sample; it is unique because of its length. This article uses a historical microanalysis to evaluate different hypotheses about the Sunbeam Corporation’s path to failure. The relationships between acquisitions and fraud, ‘scapegoat dynamics’ and ‘creative auditing’ are identified as the most relevant issues to be examined against a changing institutional context. The resulting reconstruction of the events provides unexpected insights and recommendations for future research on auditing and accounting fraud

Fraud and incompetence: Accounting in the Papal States (1831–1859)

“…Some frauds leave little evidence and can be hard to detect (Dye, 2007;Jones, 2011). Due to our dependence on archival materials, and the lack of official enquiries on these sensitive issues, we are unable to assert that Galli or Antonelli defrauded the Papal States through asset misappropriation, although their positions (as well-placed insiders) does not rule it out (see: Agostini and Favero, 2017;Gibelman and Gelman, 2004;Heier, 2016;Heier and Leach-López, 2010). Anecdotal evidence (from secondary sources) suggests that many leaders in the Papal States availed themselves of numerous perks (asset misappropriation), argued by LeClair (2019) to be 'soft corruption'.…”

“…The great majority of historical analyses of fraud and mismanagement (incompetence) has been undertaken in for-profit entities and typically relates to audit failure. Indeed, Agostini and Favero (2017), in their analysis of the fraud promulgated in the US company Sunbeam from 1996-2001, suggest that the auditor may become a scapegoat, despite work highlighting audit failures and the need for auditor independence (e.g. Heier and Leach-López, 2010, reporting on the fraud at the US-based Interstate Hosiery Mills between 1934-1937.…”

“…Asset misappropriation and corruption involves individuals misappropriating organisational funds for personal benefit (Fremont-Smith and Kosaras, 2003;Heier, 2016;LeClair, 2019). Fraudsters are often charismatic leaders, well-placed insiders (Agostini and Favero, 2017;Gibelman and Gelman, 2004;Heier, 2016;Heier and Leach-López, 2010), or as Jones (2011) suggests, 'overstrong individuals'. In addition to misdirected funds, managers and trustees of an entity can undertake fraud in the nonprofit and public sectors by paying excessive salaries and perks.…”

Accounting fraud before codification: An inquiry on budget misstatements in eighteenth-century Venice

“… 1. For the application of a microhistorical approach to a contemporary case of accounting fraud, see Agostini and Favero (2017). …”

Text mining to detect indications of fraud in annual reports worldwide

“…Risks of fraud are greater when a company has a board dominated by a few individuals and management has override controls (Wang et al, 2011). Agostini and Favero (2013) propose that financial statement fraud is caused by an excess of power in the hands of the managers or the pressure on performance exerted by investors and analysts. Beasley et al (2010) summarize the motivations for fraud cited by the SEC which include meeting earnings expectations, concealing a deteriorating financial condition, increasing the stock price, bolstering financial performance of equity or debt financing and increasing the management compensation.…”