Enron, WorldCom and Bank of Credit and Commerce, just to name a few, runs chills up and down the spines of, well, just about everybody. These scandals swirled around several large businesses, and hinged on unethical practices – unethical accounting practices, specifically. The idea of ethics is a hot button these days in all genres. In fact, universities and colleges are including ethics in the curriculum of every discipline instead of offering an ethics major, per se (Kanaiah & Kumar, 2009). It seems that ethical codes of conduct are secondary thoughts after the critical elements of a chosen discipline, when in actuality; ethics are a common thread across the disciplines. When considering accounting and ethics, the implications of …show more content…
In addition, and maybe most important to the layperson, an auditor does not prepare financial statements, nor do they determine the amounts included in said financials. In essence, an auditor sets the stage to a company’s claim to reliability and accountability to its stakeholders. To that end, ethical standing is essential.
Ethics
In a perfect world, a company does not commit fraud or some other action to deprive its stakeholders standing, financially or otherwise. However, since the world is a smidge short of perfection, there are some checks and balances to protect stakeholders. Usually, a company’s accountants are such that the financial credibility is maintained internally and then confirmed by an auditor externally with the minimum of adjustments. If internal controls are ineffective, and a company is determined to undermine its stakeholders financially, those types of incidents are reined and culpable accounting practices are discovered by an auditor’s refusal to endorse the financials associated with said business. If the external process fails, the business’ potential viability fails. This has been proven over and over and quite famously. With all that having been said, it is safe to assume that auditors are not perfect; and commit ethical failure as the Arthur Andersen firm did with Enron. There are many ways or reasons
Offering business ethics as a stand-alone ethics course or integrating it across the curriculum has sparked much debate. Henderson (1988) believed that offering courses solely devoted to business ethics sends a more powerful message. Also, Weber (1990) identified, in a national survey of graduate and undergraduate students that fifty three percent of students prefer to have a separate course in ethics. However, from most researcher’s point of view it was found that they favored integration as the superior mode of introducing students to ethical training, since it provides for a wider variety of ethical experiences in the course of the training and thus reflects the variety of ethical situations which an accountant might meet in
Arthur Andersen (AA) contributed to the Enron disaster when it has failed to the management by failing to have Enron establish and enforce its own internal control. There has been flaws to AA‘s internal control. There has been assumption that AA partners were too motivated by revenue recognition thus, overlooking several criteria when providing their services to Enron. Additionally, AA also recognised the retention of audit clients as vital and a loss of any clients would be disadvantaged to an auditor’s career. In AA internal control, the person who is able to make most of the decisions is the person who is most concerned about the revenue or losses of the client’s company.
Accountants are relied upon to be trustworthy and maintain high ethical standards. It is because of the nature of the profession that puts them in a position of trust with people who rely on their professional judgment and guidance in making decisions. These decisions are extremely important in accounting and more so that companies that have high ethical standard or main good ethical culture spend enormous time to train the staffs about the conduct that is expected of them.
Historically, business ethics was of little concern to the majority. However, beginning around the early 1970s, ethical commercial policies and procedures became significantly important. Prior to the 1970s, the term business ethics was seldom a discussion. Most companies simply did not care about the ethics of their business operations, mission or corporate behavior—they were focused totally on the bottom line profits. Conversely, colleges and universities began to offer courses that focused on “Logic,” “Epistemology,” and “Ethics” in the late 1960s and early 1970s. However, most of these courses involved highly theoretical, esoteric concentrations, seldom found in business curriculums. In many cases, these subjects were offered to liberal
Businesses, investors, creditors rely on accounting ethics. The accounting profession requires honesty, consistency with industry standards, and compliance with laws and regulations. The ethics increase the responsibility and integrity of accounting professionals, and public trust. The ethical requirements influence the management behavior and decision-making. The financial scandal of Enron and Arthur Anderson demonstrates the failure of fundamental ethical framework, such as off-balance sheet transactions, misrepresentation of financial statements, inaccurate disclosure, manipulations with earnings, etc. The confronted accounting profession and concern for ethics in businesses forced regulators to revise the conceptual framework of accounting processes.
The Enron scandal was one of the most notorious bankruptcies of all time. Many people know about the energy titan’s downfall but less realize that it was also one of the biggest auditing blunders in American corporate history, leading to the dissolution of the Arthur Andersen LLP, which at the time was one of the five largest auditing and accountancy partnerships in the world. The most intriguing aspect of this case is that Andersen was eventually cleared by the United States Supreme Court, yet the company still failed to live on due to its tarnished reputation stemming from its unethical behaviors. The pressure to generate revenue for clients while simultaneously auditing their books became too large a burden for the firm and they eventually resorted to unethical means to achieve their objectives. The demise of the Andersen accounting firm shows the true importance of practicing good ethics and maintaining a good reputation amongst peers; the vitality of the business could depend on sustaining a clean image in the ever-changing business world.
Many corporation grow and evolve there has been some ethical issues with regarding to policies and procedures within the company. However, ethical issues are not limited to the corporate world the statics show that the reason behind these unethical behaviours it has been prevalent for some time the unethical behaviour has been ongoing among business students. 86% claimed in 2008 and 2009 students had confessed to cheating as opposed to about77% that where non-business. Ruff and Costello (2009) explain there are roughly 250 website that contribute to the ethical behaviour where you can purchase your term papers online. In taking a closer look into the ethical issues that surround Rocky University the report will provide a better understanding of the discovers that were found in the report that included the following.
Ethical issues have greatly transformed in our lives since the great Enron, Xerox and other huge corporations proposed big profits showing earnings of billions of dollars and yet in reality facing bankruptcy. These corporations faced great trouble with the federals and state for manipulating financial statements. But not only corporations can be blamed on this, accounting firms were involved in this as much as the corporations were. With the business stand point, ethics comprises of principles and standards that guide behavior. Investors, traders, customers, and legal system determine whether a specific action is ethical or unethical. Ethical issue is a vast subject, but we will look at the niche
Ethics is an essential in the running of any business, but it is more than ever critical when transacting accounting decisions. When dealing with ethics in the business world, management must remember what is ethically right
What does ethics have to do with accounting? Everything, since there have been some recent financial accounting scandals; a few examples being Xerox, WorldCom, Enron, which have generated much unwanted and unfavorable publicity for CPA's, including those working as controllers or chief financial officers for organizations.
During the 2008 economic crisis there were a lot of questions about ethical behavior in the business community. The result of the behavior led to questions about how and when the practice of unethical behavior began and if it was related to practices students learned while in business school. Rocky University has commissioned a group to review the data provided from an anonymous survey to find if there is a culture and history of cheating in the school of business. “Business ethics is the study of proper business policies and practices regarding potentially controversial issues” (Investopedia, 2016). This definition is relatable to the ethics in business school studies. The use of non-approved material or assistance can lead to questions about the collection and validity of the results in any student’s submissions. How does the two relate, and is there a correlation between cheating in school and unethical behavior in the business community? By understanding more about what is being allowed in the university, it may provide us with insight into when this type of behavior starts and how can the university community can combat it at an introductory level. Rocky University provided a sample of 90 graduating business students with responses to three questions regarding academic improprieties. This report will evaluate the data and provide answers to the following questions, the total of students who are considered cheating, proportion of students that copied off the
Lindberg and Beck (2002) claim that auditor independence is hailed as the “cornerstone” in the accounting profession as it is the core reason as to why the public trusts their professional opinion. However, since 2000, many accounting fraud scandals have negatively impacted public opinion on the legitimacy of the audit profession and, if in fact, its independence is uninfluenced by other parties. One of the scandals being the sudden collapse of Enron, given that a few months prior its bankruptcy its auditors Arthur Andersen, which was one of the five largest audit and accounting firms, claimed that Enron was financially healthy, but in fact they were paid off
It is, without a doubt, imperative that accountants today must be ethical. “Most ethical dilemmas managers face in the workplace are highly complex,” says “Public Relations Tactics” (19). Businessmen, particularly accountants, manage and oversee assets so large that even a moment of unethical behavior could be detrimental to a company. One incorrect spreadsheet has the ability to show that millions of dollars never came in, that millions have been lost, or even that millions are still there even though they have been transferred into a personal account completely separate of the company. To avoid hiring corrupt, greedy accountants, companies began giving out a written ethics test as part of the hiring or training process. They were using questions like “If you watched a twenty dollar bill fall out of someone’s pocket as they left the room and there was no one else
The lack of independence for external auditors will lead to the neglect of auditing risks (William R.K., 2003), which are the main reasons for the failure of certified accountants and professional accounting organizations. The consequence of the external auditors deprived of independence would be very serious. And there are many cases, which aroused by the failure of external auditors and most are related to the lack of independence. One famous example is the bankruptcy of Enron and the role played by its external auditor, Arthur Andersen (Todd, S., 2003). Arthur Andersen was once one of the biggest accounting companies in the world, and was canceled for the involvement in the Enron bankruptcy scandal.
A company prepares financial statement to provide information about its financial position and performance. This information is in turn used by a wide range of stakeholders (such as investors, banks, customers, suppliers etc) in making economic decisions with respect to respective economic interest in the company. Typically, in terms of ownership by investment in shares of the company, shareholders though own the company but do not manage it. Therefore, the shareholder and other such stakeholders to get comfort in taking sound decision need independent assurance from the auditors that the financial statements reflect true and fair view of the company affairs in all material respects. Hence, in order to enhance the level of