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ACC 557 Assignment 1 Review of Accounting Ethics


ACC 557 Assignment 1 Review of Accounting Ethics fin571

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ACC 557 Assignment 1 Review of Accounting Ethics
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This 0 page Study Guide was uploaded by an elite notetaker on Wednesday November 11, 2015. The Study Guide belongs to fin571 at Kaplan University taught by in Fall 2015. Since its upload, it has received 29 views.

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Date Created: 11/11/15
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


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