Review of Accounting Ethics (Essay Sample)

Review of Accounting Ethics Introduction Recently, there have been a number of highly publicized ethical breaches that have given a sharp focus on the ethical behavior within the accounting profession. Enron and WorldCom are two of the companies in recent times captured the headlines due to accounting ethical breaches that had a negative impact on their employees, customers as well as the general public. Business and regulatory environment conducive to ethical behavior It is expected that corporate managers maximize returns as they comply with regulatory standards, avoid conflicts of interests among principal agents, and thus enhance the reputational capital of their companies. Following the recent breaches, the volatility of the stock market in the United States resulted in increased political pressure to bring the 1930s style of regulatory reform to businesses. This shows that the current business and regulatory environment is not conducive to ethical behavior. Following the Enron scandal for instance, there were multiple lawsuits as well as an unprecedented outrage from the stakeholders. This resulted in demands to democratize structures of corporate power, improvement on managerial accountability as well as legislating regulatory reforms. According to Albrecht and Searcy (2001) people will commit fraud for a wide range of motives including the perceived lack of effective deterrent punishments and rationalization of acceptability of illegal activity (Fuser and Miller. 2002). In the current environment, simplistic inspirational exhortation to do what is right, the recommendations to impulsively go along with what tends to feel comfortable at the time or the appeals to ad hoc abstract moral theories are not likely to provide practical guidance to the managers of today in the responsible analysis and resolution of urgent ethical issues. What is required is an interdependent moral as well as a legal framework that will disclose the complex roots in managerial decisions that are inappropriate and provide comprehensive practical remedies that will reduce the likelihood of such cases as those of Enron and future white collar crime (Verschoor, 2002). The organization, the accounting ethical breach and the impact to the organization Before its bankruptcy, Enron Corporation was an American commodities, energy and services company. The imprisonment of a number of its leadership group as well as its downfall proved to b one of the most shocking and widely reported ethics violations of al time. In addition to the bankruptcy, the company also destroyed Arthur Andersen, which is one of the worlds largest audit firms. Following write downs and disclosures by the company, the confidence of investors as well as the credit rating of the company reduced. This resulted in bankruptcy in December 2001. Securities and Exchange Commission (SEC) announced plans to pursue charges against the former CEO (Jeffrey Skilling) CFO (Andrew Fastow) among other high ranking employees. Charges brought against the CFO and CEO among other employee (high ranking) included knowingly manipulating the rules of accounting as well as the masking of enormous losses and liabilities of the company. How the organizational ethical issue was detected and how management failed to create an ethical environment Neglecting of the managerial integrity capacity was at the moral roots of the legal and financial problems at Enron. To raise capital and maintain high credit, Enron relocated a majority of its assets off the balance in to a highly complex off the book partnerships (SPEs). Some of the SPEs required that Enron kick in stock if its rating as well as the stock price fell below a given point. This left the company a financial liability of over $5 billion dollars in dept. The other idea that resulted in problems was expanding energy trading expertise in to a wide array of new commodities so as to spur earnings growth everywhere from paper to metals to telecommunication broadband capacity (Logsdon, and Yuthas. 1997). Jeffery Skilling has a way through which he would hide financial losses of the trading business among other operations of the company. The company would build a given asset and go head to claim projected profits in its books despite the fact it had not made any profit. Since the revenue from the asset was less than the amount projected, the company would not take the loss but rather transfer the assets to an off the books corporation where the loss would go unreported. Where the SPEs could be used to hide any failed assists off the company's book, they would be compensated for the losses through shares of the company's common stock. This would not go far since analysts started questioning the transparency of the company's earnings. By failing to exercise their own adequate due diligence, those in high positions at the company multiplied the harm that had been done to the other stakeholders. On the other hand, the top management also ignored whistleblower feedback choosing to be morally mute and deaf therefore diminishing their heir capacity for ethical awareness. For this, they were eventually held morally accountable. Accounts impacted and / or accounting guidelines violated and the resulting impact to ...