Company Investigated By The SEC Essay Samples

For this paper, the company selected for analysis is Prudential Financials Ltd. Information on the case was drawn from the Securities Exchange website. Based on information from the case it is evident that between 1997 and 2002 Prudential Financials Ltd engaged in improper accounting practices. According to SEC, between 1997 and 2002 Prudential Financials Ltd through one of its subsidiaries Prupac entered a risk free reinsurance contract with General Reinsurance. However, the contracts entered by the two companies had no economic implication on both companies since they were riskless.
The aim behind the contracts for both companies was to build up a bank that the company would draw down from and record as income for a specific period. Therefore, between 1997 and 1999 Prudential Financials through Prupac deposited over $190 million as part of the insurance premiums for the contract entered with General Reinsurance. From 2000, the company started drawing from the $ 190 million deposited plus the interest earned over the period.
The company then recorded the drawings and recoveries from the insurance contracts as income in its income statements. These funds were drawn less $50 million, which was the fee that General Reinsurance charged for the contract. This in turn led to misstatement of the company’s pre-tax income by $41 million, $ 80 million, and $ 97 million in 2002, 2001 and 2000 respectively. This led to the company filing financial records that were inaccurate and that did not meet the laid out accounting standards and principles.
It would be more difficult to commit the fraud under the International Financial Reporting Standards (IFRS). This is attributable to the fact that under the IFRS framework IFRS 4 the reporting of insurance and reinsurance contracts has been carefully outlined.