U.K.-based energy company reviews expense accounting

Summary:

National Grid PLC (NGG) is a U.K. based company with electrical and natural gas networks operating both in the United States and the United Kingdom. Earlier this week, the NGG has stated that they will be appointing a consultant to conduct an independent review of the company’s policy in accounting for the expenses accrued by their branches operating on U.S. soil. The decision was made following the announcement that U.S. regulators would be commencing an investigation as to how the company recorded its expenses accumulated in the U.S. It is likely a long shot but could NGG suffer the same sort of fate that Enron Corporation suffered back in 2001?

Connections:

The connection to this chapter is the accounting standards known as the generally accepted accounting principles (GAAPs). The matching principle suggests that both revenue and expenses are required to be matched to their appropriate fiscal periods. It is not logical to allow a business to choose when to account for their revenue and expenses. If that were the case, businesses could easily manipulate their financial statements to their liking. For instance, Enron Corporation had previously falsely reported their revenue in the financial statements produced by the company. As a result, this greatly misrepresented the company’s financial situation. I believe that it is a good move on the part of the U.S. government to open an investigation on the NGG. With the their economy already rather unstable, it is best for the nation to put a stop to all forms of corporate scandals no matter how big nor small.

Reflection:

In my opinion, all businesses should be required to strictly follow the guidelines set out by the generally accepted accounting principles. These guidelines are there to basically set out the black and the white in the world of accounting. If businesses are regulated by set standards, many unethical individuals would not hesitate to take advantage of the consumers. The government should instate various penalties for failing to abide with the GAAPs ranging from fines to potential jail time depending on the level of severity. If the National Grid PLC, or any other business for that matter, is not accounting for their expenses properly, in all likelihood, they are not paying the correct amount of taxes. At a glance, accounting for expenses may not seem like such a big deal. However, recall that you are taxed on the amount you have left after you deduct all your expenses. With that in mind, expense figures can be inflated to minimize the amount of taxes owed. The government needs to take a hard stand in enforcing the GAAPs or we may see some more serious corporate scandals in the future.