Accounting and business ethics (Essay Sample)

Accounting
Name
Institution
One of the most talked about topics in current management is business ethics and its role in corporate social responsibility. Business ethics is a high profile issue in management because of the increasing corporate scandals that continue to hit organizations (Economist, 2002). These corporate scandals have led to extensive destruction of economies and even society. This is why ethics is majorly focused on particularly in accounting. This is why accountants have come up with bodies meant to protect these ethical standards. Ethical standards in accounting were not introduced until 1929 (Ketz, 2006). Before the introduction of these standards, there were no any official accounting standards. Before this time, accountants were not allowed to disclose any information concerning their businesses to any external users. Thus, it must be acknowledged that the introduction of these accounting have helped a lot in improving accounting ethics globally. However, this does not mean that the introduction of these accounting standards have totally eliminated unethical behaviors in accounting (Seabury, 2002). As recent as 2012, Yahoo CEO Scott Thompson was relieved of his duties less than six months in charge after being found guilty of claiming he had both a degree in accounting and computer science. It was later found that he only had a degree in accounting. Despite the minor challenges still faced, it is still clear to see how most of the accounting standards developed since 1929 have revolutionized ethical behaviors in that subject. The current business environment is still a matter of success versus struggle. Some businesses duly obey the laws while others continue to falter in their daily operations. It is only hoped there will come a time when all businesses will follow ethical standards to the letter.
In recent years, a lot of companies have been faced by ethical breaches in matters relating to accounting (Sridharan, Dickes, & Caines, 2002). Scott Thompson’s scandal of 2012 was not highly publicized because the situation in this case did not involve accounting issues. He only lied about having a computer science degree, which is still a breach of accounting ethics, but still does not rate against highly publicized accounting breaches. One of the most scandalous and extensively recognized accounting ethics breaches of all time is the fall of Enron in 2001 (Sridharan, Dickes, & Caines, 2002). It is considered a major scandal because it did not only make the company bankrupt, but also led to the downfall of one of the biggest audit companies in the world, Arthur Andersen. Enron grew within a space of 15 years to be ranked as the seventh largest company in the United States. However, its fall began in 2001 when the Securities Exchange Commission (SEC) reported that it was looking into Enron’s accounting practices. This is after the commission had doubts over some of the shareholders and analysts belonging to the firm. The investigation that followed revealed some of the write-downs by the firm that reduced the firm’s credit rating and investor confidence (Seabury, 2002). The inevitable happened as the company declared bankrupt in December 2001. After these events, the SEC reported it would be pursuing charges against high ranking officials in the company including its former CEO Jeffrey Skilling, Kenneth L. Lay, and CFO Andrew Fastow among other high-ranking employees. These employees were charged with manipulating accounting standards knowingly leading to great losses to the company. Skilling and Lay were the most controversial figures during this process as they were tried collectively on 46 counts on issues such as bank fraud, money laundering, conspiracy, and insider trading. The former CEO was later found guilty on 19 counts and condemned to more than 24 years in jail (Economist, 2002). On the other hand, Lay was convicted on 6 counts of fraud and faced about 45 years in prison. However, Lay died in 2006, about three months before his hearing. After the Enron scandal, the Congress decided to pass the Sarbanes-Oxley Act in order to improve accountability in corporations. The company officials were found guilty of disregarding a number of accounting principles. The company was found guilty of money laundering and bank fraud. The officials were also accused of conspiracy among other accounting deceptions.
The Enron scandal was not hard to determine because of the number of issues in accounting ethics that were violated along the way (Ketz, 2006). It was easier to detect because bank fraud and money laundering were some of the ethical values violated. But since the conspirators well organized their plan, it took a lot of time to find their plan. The scandal became publicized when the press started following close communications between Mr. Lay and other senior officials in Enron. Capitol Hill also begun talking of the close association Kenneth Lay, the Chairman of Enron had with the then President George W. Bush and other Republican officials. It was believed that most of the money being laundered was being collected for campaigns (Economist, 2002). It was also revealed that Mr. Lay and other senior officials were making a lot of money from the shares belonging to the firm, while other junior workers pension funds were largely invested in the company stock for a long period of time. This was a ploy to prevent these employees from selling their shares in time. Management failed to create an ethical environment because it was involved in the money laundering. They did not want to do anything that could lead to public suspicion. There is one issue that attracted more attention of the ethical violations that were happening in Enron (Seabury, 2002). For instance, what governs the pubic capital markets and most importantly the role of auditors? This is real reason why Arthur Andersen collapsed with the fall of Enron. The Enron conduct was detected because it had political links. Both the former CEO and the current one had political connections with the Republican Party. This was one of the paths that led the SEC from catching the culprits.
The fall of Enron led to both social and economic impacts in the United States. One of the major collapses was the liquidation of the whole firm. Before 2000, Enron was famously referred to as the “darling” of Wall Street. However, its collapse led to lose of jobs, affected many pension funds, and dumped the Wall Street into misery. Many people still fail to understand how a company as big as Enron could collapse in an overnight without the fraudsters being caught earlier in the process (Seabury, 2002). This was all due to the work of CFO Andrew Fastow who was promoted in 1998. He came up with a way of fooling people that the company was in great shape when indeed money was being laundered. This scheme was known as special purpose entities (SPE). This scheme allowed the firm to hide assets that were performing badly, thus, keeping them off the company’s books. However, this conspiracy could not go on for a long time and by April 2001, the transparency of Enron’s earnings came into question (Sridharan, Dickes, & Caines, 2002). Few months later the company was in a free fall. High ranked officials left their posts led by CEO Ken Lay. In October 2001, the company reported its first quarterly loss. The effect of this was closing its SPE in order to avoid distribu...