ACC 557 Assignment 1 Review of Accounting Ethics
ACC 557 Assignment 1 Review of Accounting Ethics
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Date Created: 11/06/15
Ethical Breaches 1 Running Head ETHICAL BREACHES Ethical Breaches Ethical Breaches 2 Introduction In recent years accounting ethical breaches has emerged as a major problem for most of the organizations With growth of businesses the number of accounting ethical breaches has also increased in organizations Accounting ethical breaches may be defined as the misappropriation and misconduct of financial data by the auditors and accountants of the company Duska amp Ragatz 2011 The accounting ethical breaches not only affect the organization but also the stakeholders involved with the organization The paper will discuss the accounting ethical breach in Enron The paper will also discuss the ethical issues accounting ethical breaches and the recommendations to prevent such breaches Ethical Behavior in Current Business and Regulatory Environment With increasing number of corporate ethical breaches the role of ethical behavior has increased in organizations The organizations are more supportive to ethical behavior ensuring risk compliance and governance culture within organization As a part of this culture effective communication around ethical practices has been followed by the organization Since ethical breaches are mainly done for the sake of money rewarding and ethical practices has effectively helped organizations to minimize the ethical breaches Ferrell amp Fraedrich 2009 At the same time ethical breaches have not only affected the image of the company but are also responsible for its failure This is also one of the major reasons why current businesses and regulatory environment are more conductive to ethical behavior It is the result of its impact that organizations have introduced SarbanesOxley 404 compliance a guideline that helps organizations to meet the criteria of ethical behavior Even organizations like WallMart have also been accused of violating ethical policies accepting discounts from vendors who are eager to work with company This has subsequently affected Ethical Breaches 3 the image of the company in the market Similarly right leadership values are also given preference at the workplace as a part of this ethical behavior The survey conducted by National Business Ethics states that strong ethical culture helps organization from risky ethical behavior that may affect the image of organization Enron and its Accounting Ethical Breach Enron was an USA multinational company one of the world s leading Electricity and Natural Gas Company During the year 2000 company has claimed revenue of 101 billion and it was the most innovative company for last six consecutive years Enron 2012 But with its planned accounting fraud which is popularly known as Enron scandal the company became symbol of willful corporate fraud and corruption The scandal of Enron has revealed the shady practices of organizations and given birth to new forensic accounting There was illegal transfer of fund into Enron s top level officials At the same time complex scheme of offbalance sheet partnership was also responsible for its collapse under mountain of debt In order to conceal the losses Enron used special purpose entities Through this means organization tried to move its assets and debt off from balance sheet by making increase in the ow of cash through books As a part of this scandal organization has also collapsed the leading electricity trading market Cristina amp Lucian 2012 Organization has to file for its insolvency under United State Bankruptcy Code Similarly price of the stock has also gone to a significant decline from 90 per share to less than 1 per share As a part of this scandal its key personnel have also faced legal actions like prison and fine Ethical Issues and Management Failure Organizational ethical issues were re ected from the behavior of its CEO itself as the actions taken by CEO were not justified from any moral behavior It was during the year 1988 when it was found that millions of dollars has been transferred into personal account of two employees At the same time the insider trading was also revealed when the investors were told Ethical Breaches 4 to buy shares and the top officials of the company were selling their shares as fast as they can Li 2010 The fraudulent bookkeeping questionable loans have also revealed the unethical practices in the organization The dummy companies created outside of America have also helped to identify the ethical issues within Enron Wire fraud money laundering securities fraud mail fraud and conspiracy have also contributed to identify the ethical issues in organization Since the management itself was involved with the accounting ethical breaches there was no question of management failure to create ethical environment Dembinski 2012 With such motives it was not possible to create an ethical environment for its employees Its top level executives were aware of the situation that the organization was not interested to follow ethical norms Violated Accounting Guidelines Enron has violated wide number of accounting guidelines that has resulted into the failure of firm Manipulation of balance sheet was one of the violations that company has made Company has misrepresented the data in its balance sheet to gain profit from the market It has helped organization to increase the price of its stock and when corrections were made the price of stocks fall to drastic level Sharp 2005 Similarly many complex tactics were also used to misrepresent the financial statement Its financial statement disguised loans as cash ows that have helped organization to show maximum profit in order to attract investors Apart from this full disclosure principle was also violated from the company as no information was disclosed in the notes to the statement Accounting guidelines state that as far as the organization is continuing it should carry out its objectives and commitment while Enron has never maintained such guideline and violated all such rules The result of violation came out as a failure to the company Company has made loss of 609 million as a result of this violation Niskanen 2007 Measures to Prevent Ethical Breach Ethical Breaches 5 In order to prevent this ethical breach within organization there are several measures like organization should have focus on removal of con icts of interest between the parties The accountant should strictly be asked to work on the books It would not allow the key personnel within organization to misrepresent the financial data Enron should also simplify its partnership with other companies so that transparency could be maintained within the transactions between organizations Foster amp Lasser 2010 Through reducing this complexity the push around ability and hidden debt of the company could have been reduced Similarly financial disclosure system should be formulated so that each transaction of the company can be recorded Direct regulations and standards should be formulated so that it could prevent ethical breach within organization Continuous review process of every auditing report also needs to be followed in the organizations The integrity of executives is important from this concern In order to implement all these measure the most important aspect is to restructure the whole organization accordingly Loyalty to the ethical standards is very important to effectively implement these measures to prevent ethical breach Foster amp Lasser 2010 An effective reporting system should be formulated to ensure that the measures suggested could easily be implemented within organization Conclusion On the basis of above discussion it could be said that ethical behavior within organizations is very important with increasing number of accounting frauds in organizations At the same time the personal interest of the key members of Enron was mostly responsible for its failure and it is important to ensure the responsibility of promoters in order to avoid such ethical breaches in other organizations Ethical Breaches 6 References Cristina D amp Lucian C 2012 Fraud Case Analysis Enron Corporation Retrieved from httpsteconomiceuoradearoanalevolume2007v2financesaccountingand banks41pdf Dembinski P 2012 Enron and World Finance A Case Study in Ethics Retrieved from http WWWstrongWindpress compdfsTuiJianEnron20and20World20Finance 2020A20Case20Studv20in20EthicsDdf Duska R amp Ragatz J 2011 Accounting Ethics USA John Wiley amp Sons Enron 2012 Retrieved from httpWWWenroncom Ferrell O amp Fraedrich J 2009 Business Ethics Ethical Decision Making and Cases USA Cengage Learning Foster 1 amp Lasser R 2010 Professional Ethics in Midwifery Practice USA Jones amp Bartlett Publishers Li Y 2010 The Case Analysis of the Scandal of Enron International Journal of Business and Management 5 10 3341 Retrieved from httpccsenetorgiournalindexphpiibmarticlevieWFile76275 855 Niskanen W 2007 After Enron Lessons for Public Policy USA Rowman amp Littlefield Sharp D 2005 Cases in Business Ethics USA SAGE Business Development 1 Running Head BUSINESS DEVELOPMENT Enterpreneurship Business Development 2 Introduction There are certain people around the world who look forward to convert their hobbies into the businesses In the present paper discussion shall be made regarding one such organization in which the people are looking forward to convert their hobbies into businesses The individuals in the organization will look forward to make sure that they carry out their activities in such a manner that they earn profits and in addition to this they also work towards compliance with the necessary rules and regulations without any kind of problem or issue for them In the present paper discussion shall be made regarding the organization and various key things about the same Business Type In the present situation the business form selected by the people involved is a restaurant business The individuals involved in the business had the hobby of cooking food when they were students They looked forward to make sure that they turn this thing into a business Due to this they have selected the business of opening up of a restaurant in the present situation In the restaurant the individuals will be selling the food products of various categories Vay amp Devay 2006 The products will include fast food for the customers as well as some form of Indian food as there are various Indian people living in the area in which the organization will be carrying out its activities Staffing Plan If an organization has to make sure that it works in a proper manner towards the achievement of its goals The organization has to perform various kinds of activities for achievement of its goals in an appropriate manner The activities of the organization include Business Development 3 financing activities human resource management activities marketing activities and various other kinds of activities The organization shall make sure that it has appropriate employees available to it regarding the performance of activities regarding the finances of the organization The employees will work for the purpose of making sure that the organization prepares the financial statements and makes the compliance with the accounting standards framed by the government for the purpose of making sure that the organizations disclose all the key things to the shareholders The employees in the organization will also be able to make sure that the organization avoids any kind of penalty or trouble which could arise from it at any point of time in the future B evans 2006Another activity for the organization is the human resource management activity For the organization it is very important to provide an appropriate level of training to the employees The first work in the organization regarding the employees will be the selection of the employees If an organization will fail to select the employees in a proper manner manner it shall be difficult for them to make sure that it gives effect to its activities in a proper manner The human resource management department of the organization plays a very important role regarding the selection of the employees giving them training and ensuring that they meet the organizational standards and accomplish the goals of the employees It is also likely that the employees in the organization could end up leaving the organization due to some reason Therefore it is also important for the organization to make sure that it reduces the employee turnover The employee turnover within the workplace will be reduced by way of appropriate level of relationship between the employees and the organization The employees working in the human resource management team will work in Business Development 4 such a manner that the relationship between the employees and the organization is improved so that better level of results are available to the organization in the future The marketing activities of the organization are very important for its growth and prosperity An organization has to make sure that it performs its marketing related activities in such a manner that it achieves the success to the highest possible level In addition to this it is also important for the organization to ensure that its sales and the profitability keeps on increasing For this purpose the organization needs good quality marketing managers available with it The organization will have the ability to attract the customers and to retain them with the help of high level marketing practices available with them In this way it can be said that the marketing department of the organization will definitely be of high need for the organization and the organization should have proper investment in time in making this department Form of Business There are various kinds of business forms which could have been selected by the organization in the present situation The form of business taken into account for the present paper is partnership form of business In this situation there are two individuals who are involved in the business activities therefore it will be most appropriate for the organization to have the partnership form of business in the present situation There are various advantages of making use of this form of business for the organization presently The first advantage of partnership form of business structure is that this form of business structure will be that this form of business structure is established in a very quick period of time There are not a lot of legal compliances required to be performed in this form of business structure The partnership form of business is also able to have an appropriate Business Development 5 level of capital available with it The capital in this form of business is provided by two partners which is better in comparison to the situation when the capital is provided only by one organization Chart of Accounts In the present situation various accounts will be prepared by the organization The accounts will include the depreciation account income and expenditure account balance sheet of the organization the capital account of the partners of the organization and the ratios for and every expense for the organization In the capital account of the partnership firm the details regarding the profits credit to the partners remuneration paid to them the additions to their capital and the reduction in their capital account is noted down In this way the capital account shows all the changes in the capital of the partners of the organization The second account is the depreciation account This particular account provides information in relation to depreciation charged on a particular fixed asset of the organization The depreciation is a non cash expense and it just reduces the value of the asset of the organization and no cash is reduced from the account of the organization in relation to this situation The profit and loss account is another very important account This account shows the information regarding all the expenses incurred by the organization and the incomes generated by it The organization will also prepare the balance sheet The balance sheet will help the organization to find out various important things The balance sheet provides the information about liabilities of the organization the equity capital of the organization and the assets available to the organization All these accounts will help the organization to make sure that it will disclose the correct picture of its financial statements in a proper manner in the future Applicability of GAAP Business Development 6 In the present situation the business form selected by the organization is partnership form of business Generally accepted accounting standards and the International Financial Reporting standards are applicable only for the corporations therefore these standards will not apply to the partnership firm as in the present situation Therefore the business in the present situation will not be required to make sure that it complies with the above mentioned standards but it would be necessary for the partnership firm to make sure that it prepares the reports in such a manner that the stakeholders get appropriate information about the financial position of the firm Performa Balance Sheet Liabilities Amount Assets Amount Partner39s Capital 124500 Building 144000 Loans 100000 Equipments 90000 Payables 56000 Receivables 46500 Total 280500 Total 280500 In the above mentioned Performa balance sheet the capital of the partners is taken as 124500 The organization has a building and equipments for making sure that it provides the food products to the consumers Siegel amp Shim 2008 The owners have also taken loan of 100000 in order to make sure that they carry out their activities properly There are certain levels of receivables as well as payables for the organization also in the present situation Performa Income Statement Particulars Amount Particulars Amount To Salary 36000 By Revenue 180000 To Electricity 24000 To Training 24000 To Depreciation 36000 To Net Profit 60000 Business Development 7 Total 180000 Total 180000 In relation to the Performa income statement it has the estimated that the organization will earn revenue up to the level of 180000 The level of expense incurred by the organization will be 120000 and the organization will also incur expenses on salary electricity training of employees and depreciation After deducting the expenses the organization expects to earn a net profit of 60000 Safeguarding the Assets For the organization it is very important to make sure that it safeguards its assets to the highest possible level The assets of the organization are currently at the level of 234000 For the purpose of safeguarding its assets the organization needs to make sure that it gets the insurance of the assets done With the help of the insurance of the assets the organization will be able to make sure that it is able to protect itself from the loss caused by it in the situation of fire or destruction of its assets The first internal control procedure will be regular maintenance of the assets and the second internal control measure will be making a reservation for replacement of the assets Impact of Regulatory Environment In the present situation the organization needs to make sure that it does not create any kind of problem or trouble for it regarding various kinds of non compliances The non compliances within the organization will result in a reduction in the goodwill of the organization Dransfield 2000The organization should always make sure that it works in such a manner that it avoids all the problems and trouble for it and it also ensures that the stakeholders are not cheated and are provided true information about the financial position of the organization Conclusion Business Development 8 The present paper was in relation to the organization which has been established by two individuals who had cooking as their hobby Regarding this thing it has been provided that the organization has to consider various things to perform in a better manner towards the accomplishment of its activities It should consider the staffing plan very seriously because proper employees will help organization to accomplish its objectives The organization is engaged in restaurant business and it is a partnership firm The GAAP and IFRS are not applicable to it In addition to this the organization should work in such a manner that it has the appropriate level of safeguarding in relation to its assets The organization has to comply with the regulatory environment to the highest possible level so that its image stays intact Business Development 9 References Bevans RN 2006 Business Organizations And Corporate Law Cengage Learning Dransfield R 2000 Human Resource Management Heinemann Siegel GJ amp Shim K 2008 Financial Management 3rd ed Barron s Educational Series Vay DLD amp Devay D 2006 The E ectiveness of the SarbanesOxley Act of 2002 in Preventing And Detecting Fraud in Financial Statements UniversalPublishers
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