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Accounting - FIFA Corporate Scandal - Real Life Corporate Scandal - Assessment Answer

January 22, 2019
Author : Ashley Simons

Solution Code: 1FFI


This assignment falls under Accounting which was successfully solved by the assignment writingexperts at My Assignment Services AU under assignment help service.

Accounting Assignment

Assignment Task

Allocate a case which concerns a real life corporate scandal. For allocated case, students should answer the following questions:

Mark available Mark allocated

What was the scandal?

How did they do it?

When did it take place, and who was involved?

Who were the stakeholders in this situation, and what was the impact of this violation on the stakeholders?

What accounting principle(s) they violated?

How did the misdeed affect the stock price?

Who were the auditors, and what role the auditors played in this incidence?

What were the lessons learned?

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Imperfection is one of the attributes of human beings and making mistakes are a normal occurrence in our daily lives. It is one thing to make a mistake, but it is also another to keep on repeating the same errors and its worse when the mistakes are selfish and intentional. According to Blake & Calvert (2015), Organization managers make daily decisions, but no matter how insignificant the decisions may seem, wrong choices can lead to adverse effects and disadvantage to the many shareholders especially if the decisions are self-centered. Corruption in big organizations resulted in the loss of public trust and diminished business climate which is not a good thing for the firm since it jeopardizes the profits and integrity of activities. Corruption in organizations involves the embezzlement of company funds, bribery and the general lack of accountability in financial matters.

Nature of the corruption scandal of FIFA

FIFA is an international company which runs football activities and whose aim is to support the growth of talent all over the world (Jennings, 2016). Being a publicly traded company, it has major and minor shareholders who have their trust in the company management since they have made massive investments.

During the year 2015, FIFA was engaged in a corruption scandal whereby the managers were under investigation by the Federal Bureau of Investigation over allegations of racketeering, fraud, and misappropriation of funds (Forrest, 2012). According to The Challengers (2015 pg 48), the Swiss law enforcement authorities stormed into one of the hotels in Zurich where the managers were having a vacation, and since they were armed with warrants issued by the United States Department of Justice, they took the directors with them. The charges were brought up not only due to recent allegations of corruption but also as a result of a 24-year-old case where the federation had received reports of fraud, and 4 of the accused pleaded guilty over the matter.14 of the managers had a total of 47 indictments associating them with various forms of corruption.

While the rest who were not vindicated were left behind to continue with a 24-year scheme that has seen the company lose billions of money at the shareholder's expense. Sepp Butler who was the acting president then was not mentioned in the scandal, and he was later on re-elected for a fifth-year term. Giving a very motivational speech of redemption, the president promised to return the offshore boat (FIFA) back on shore and sailing towards greater heights. It was only a matter of time before allegations of corrupt activities which happened under his watch started flowing in from all directions. Last year 7 of the managing directors of the football federation were arrested and are currently under investigation.

According to Yeoh (2012), FIFA has a habit of frequently accepting massive amounts of bribes to enquire broadcasting rights for sporting communities. The sporting managers of various clubs are first accused of allegedly receiving bribes amounting to a total of 150 million dollars for the federation to secure broadcasting sites for some of the football clubs. Nine of the sporting officials were named, and five managing directors from FIFA were also named. FIFA was sold out by acting informants who admitted that during the world cup holding awards; there were no objective criteria for the bidding process and votes were rigged since the positions had already been bought. Official Chuck Blazer admitted that he took bribes so that the 1998 world cup would go to France and the 2010 world cup to South Africa. According to Blake & Calvert (2015), the bidding process of the 2018 and 2022 world cups were also under investigation since the evidence showed that the process had been compromised and most of the other countries had not received a fair chance in the process. The Swiss authorities are currently undertaking these investigations and are required to give a report to the shareholders as soon as possible. Due to the accusations, the FIFA acting president Sepp Blatter submitted his resignation which made him even more of a suspect. The following diagram analyses the allegations provided by the Swiss authorities to the football federation.


The sporting organizations paid an amount not less than 150 million dollars of bribes and kickbacks so as to facilitate the rigging of the world cup bidding processes (Forrest, 2012). This investigation is just the beginning of the allegations as the Swiss authorities have told of other informants coming forward with valuable information linking the FIFA officials who involve the recently resigned president Sepp Buttler.

According to Blake & Calvert (2015), shortly after the arrests took place in Zurich the ongoing investigation on the world cup allegations of the Qatar and Russia world cups started. The president Sepp Battler who resigned a day just after he was elected but shortly after the allegations were made a resignation speech saying that the reason for his departure was not in any way connected to the corruption scandals as he was not involved in any of them. Sepp stated that FIFA was undergoing a transition and he was just not the right leader for such a major strategy. The question that many posed was why then did he engage himself in the election and campaigns if at all he did not feel fit for the position. However, investigations have brought in fresh evidence of Sepp making a wire transfer of over 10 million dollars for the purpose of bribing and other unconfirmed amounts which were meant to buy him votes (Forrest, 2012).

FIFA had had previous allegations which date back 24 years and which had had no major crackdown by the authorities due to lack of sufficient evidence until recently when tests and witnesses surfaced. There are allegations that all along the former president knew about the corruption and that always tried to cover up evidence that would implicate them. One of the CNN news bulletins of May 2016 stated that he could not struggle so hard to conceal something that only connected his friends but suggested that he also had to be involved.

Implication of the scandals to Stakeholders of FIFA

According to Forrest (2012), FIFA has 211 member associations and who all work under the governance of the football federation who showed a lot of mistrust and disappointment in the organization. Furthermore, the primary sponsors of clubs activities who include the Coca-cola company, VISA, Hyundai, Adidas and second class sponsors like McDonalds and Nike were under pressure to follow up on the allegations and ensure that corruption is curbed for once and for all. Other stakeholders include the companies that buy up the broadcasting rights which include the Traffic Sports USA. Companies like Coca-cola and VISA which invest a lot of money were disappointed in the management and said that the former president had failed to keep his word at eradicating the vice of corruption from the organization. Companies like the Traffic Sports USA and Nike were however mentioned in some scandals and are under investigation.

The federation ensures its members and sponsors of utmost honesty, upholding the integrity of football and accountability of their money and the recent accusations have stirred up a lot of disappointment among the stakeholders.

The speaker's committee which was formed as a result of the various scandals is trusted with the responsibility of ensuring that all financial matters are handled well on behalf of the stakeholders (Forrest, 2012). The committee has been accused of also engaging in the fraudulent activities. During the formulation of the committee, it was agreed upon that no member of the managerial table would be allowed into the chamber to enhance independence. At the annual meeting of all stakeholders, the committee always gave figures to show that the Federation was accountable only for the recent accusations which show continuous corruption schemes for the last 24 years.

Accounting principles violated

FIFA has broken some accounting principles; one of them is failing to respect the fundamental principle of the economic entity which states that a company is an independent being and operates on its own. In essence, this means that the managing directors are not and should not use the business money to engage in their personal activities. The former president of the company Sepp Battler is allegedly mentioned by one of his vice presidents as having paid off a 10 million bribe to buy votes to ensure that he regained his position as president for a fifth term (Blake & Calvert,2015). He engaged the organization's money in his personal activities.

The federation has also violated the principle of full disclosure whereby all information regarding the organization's money is supposed to be disclosed to the stakeholders. The various bribes taken and given for different purposes was not included in the company’s expenses and revenues, and so there is a violation of principle. The disclosures if not quantifiable should be elaborated in the form of footnotes at the end of the financial statements reports and explained clearly for the various stakeholders to understand. The lawsuits that will in future face the FIFA organization should be one of the financial matters to be disclosed in the footnotes since it would be difficult to tell if they will win or lose the lawsuit.

The organization's management did not uphold the going concern principle since they are willing to put the company’s financial health at risk. The going concern principle is the assumption that a company will continue to exist for the longest tie possible. According to Forrest (2012), the indicators of a company that may not last is the constant involvement in corruption which makes the public lose faith in the company and thus may think of withdrawing membership or sponsorship leaving the company without resources and in the long term it may crumble down and become extinct.

Stock Market

The stock market does not favor uncertainties, and when a company’s going concern is under question then people find it uncertain to hold on to such shares, and since no one is ready to risk a huge amount of money on such shares, the price has to go down. According to Yeoh (2012), the FIFA fiasco involved all manner of scandals, possible lawsuits, and uncertainty which led to the fall of share prices. The concerns by the sponsorship companies stating that they may revoke their sponsorships if the company does not change their financial accountability crisis have also raised tension in the market. The stock volume and prices have gone down in the global market. The effect has majorly been felt in Qatar who thought that the resignation of the president may be a cause of tension leading to the country being stripped of their 2022 world cup privilege (Yeoh, 2012). The stocks went down a significant 2.4% and are expected to go down even further unless the tension clears up.

The auditors

KPMG Switzerland was the official auditor of the FIFA Company since 1999, until earlier this year when they resigned (Yeoh, 2012). As the corruption scandals hit the waves, the heat turned on the company which defended themselves saying that the corrupt officials did not leave any suspicious information in their books and that they always did an exhaustive audit. He also states that the bribes were personal activities that were not reflected in the books and since an auditor only checks the compliance of GAAPs and the validity of information represented, there was no way he would have seen such a mistake. The auditor has been accused of not alarming stakeholders of the critical financial health of the company. According to Jennings (2016), the Audit and compliance committee have also been charged with compromise. Allegations state that the audit and compliance committee made a wire transfer to KPMG asking them to exclude some information from the financial reports, what has not been established is whether or not the company accepted the bribe. The fact that they were still working for the organization is said to be an indicator that they took the bribe, allowing information to be misrepresented.

Lessons learnt

Corruption takes a village and can happen for years if not correctly monitored it can reach extreme levels. FIFA is a company with a long history of corruption, and now that the evidence allowing the investigation to be launched have surfaced it will be easier to end the cycle of corruption in the organization. The FIFA's image has been tainted, and it has taken the integrity of football with it. It will take a lot of intervention and a whole new transformation for the organization to be left with no trace

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