Business ethics Essay

Custom Student Mr. Teacher ENG 1001-04 6 November 2016

Business ethics

Introduction In recent years, accounting ethical breaches has emerged as a major problem for most organizations. With growth of businesses, the number of accounting ethical breaches has also increased. Accounting ethical breaches may be defined as the misappropriation and misconduct of financial data by the auditors and accountants of the company (Duska & Ragatz, 2011). The accounting ethical breaches not only affect the organization, but also the stockholders involved with the organization. This paper will discuss the accounting ethical breach in Enron.

This paper will also discuss 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 unethical behavior has decreased 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 & 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 Sarbanes-Oxley 404 compliance, a guideline that helps organizations to meet the criteria of ethical behavior.

Wall-Mart has also been accused of violating ethical policies accepting discounts from vendors, who are eager to work with company. This has subsequently affected 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 off-balance 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 flow of cash through books. As a part of this scandal, organization has also collapsed the leading electricity trading market (Cristina & 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 reflected 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 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 other companies created outside of America 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 flows 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 In order to prevent ethical breach within organizations, there are several measures that should focus on removal of conflicts 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 have simplify its partnership with other companies, so that transparency could be maintained within the transactions between organizations (Foster & 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 organizations. 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 & 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.

? References Cristina, D. & Lucian, C. (2012). Fraud Case Analysis: Enron Corporation. Retrieved from http://steconomice. uoradea. ro/anale/volume/2007/v2-finances-accounting-and-banks/41. pdf Dembinski, P. (2012). Enron and World Finance: A Case Study in Ethics.

Retrieved from http://www. strongwindpress. com/pdfs/TuiJian/Enron%20and%20World%20Finance%20-%20A%20Case%20Study%20in%20Ethics. pdf Duska, R. & Ragatz, J. (2011). Accounting Ethics. USA: John Wiley & Sons. Enron. (2012). Retrieved from http://www. enron. com/ Ferrell, O. & Fraedrich, J.

(2009). Business Ethics: Ethical Decision Making and Cases. USA: Cengage Learning. Foster, I. & Lasser, R. (2010). Professional Ethics in Midwifery Practice. USA: Jones & Bartlett Publishers. Li, Y. (2010). The Case Analysis of the Scandal of Enron. International Journal of Business and Management. 5 (10), 33-41. Retrieved from http://ccsenet. org/journal/index. php/ijbm/article/viewFile/7627/5855 Niskanen, W. (2007). After Enron: Lessons for Public Policy. USA: Rowman & Littlefield. Sharp, D. (2005). Cases in Business Ethics. USA: SAGE.

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