Stretching the Principles of Revenue Recognition Essay
Stretching the Principles of Revenue Recognition
In the business world, not everything will work perfect to our advantage, but one thing people in the business world should always make sure to do is to be smart when making decisions. The best way to be smart on making decisions is following their own ethics as leaders. To be successful, there should not exist dishonesty, greed, or arrogance because these three factors will bring any business to failure. However many times, leaders such as CEO’s and CFO’s are faced with difficult dilemmas that put them in question of their own ethics and values, such as the following case of the CFO of venture-backed tech startup, John and CEO Ralph.
John and Ralph are faced with the dilemma of whether to commit fraud for the company’s ability to stay afloat, or have trouble with gaining sufficient funding in the second round, which could mean go bankrupt and that will be the end of the company. The problem leading to such a serious dilemma is that the company had been doing really well, but recently big customers have been placing fewer orders, giving Ralph the pressure to show growth because the company is ventured-backed and the investors expect results. Ralph feeling so pressured to show growth, talked to John about recording a major order that was still under negotiation as the current quarter is ending in the next few days; “including this order would give a significant boost to the company’s financial reports.” But doing so John knows they will be committing fraud for the survival of the company, as the paper states “the Sarbanes Oxley Act requires the CEO and CFO to sign off on all quarterly reports.” This dilemma puts John in test of his ethical standards. John is accountable to perform ethical business practice and SHOULD NOT record the major order before the deal goes through. He should tell CEO Ralph that he cannot perform fraud because it is against his ethics and morals as well as jeopardizing his reputation, and the company’s reputation as well. Doing this act can save the company but it can also lose the company.
John and Ralph are leaders of the company and should always follow Ethical behavior because doing so they are acting in a way that is good and mutually beneficial for themselves and society in all. Even though they are afraid to go bankrupts, it is better to be honest and by being honest they are also following the law. It’s an illegal case, and they should both think of the negative consequences it would bring them if they sign it. By going against the law, they will not only lose the company but also their own freedom ending up in jail, similar to the Enron case.
The Enron case has influenced my answer because it should teach people in the business world what being unethical causes and why no one should commit fraud because the truth always comes out. I myself am not in favor of committing fraud, and from my morals, and life rules, I will never commit it even if it will make me a millionaire over night. Many people that commit fraud the first time and don’t get caught will keep performing it over and over again making it their habit, until one day they get caught just like the case in the movie The Wolf of Wall Street, specially when it involves a lot of money, and forgets the consequences they will be faced later when they get caught. They become irresponsible and forget the effect they are causing on others.
Ralph is being so irresponsible and selfish by telling John to book the order. The Enron documentary should teach every viewer that if one is going to commit fraud, it should not affects others. Ralph should know better that if John was to lie in his finance records and perform Ralph’s actions, not only John but also the company, as a whole will suffer consequences similar to the ones faced by Enron and its executives. Just like the Enron case where the CEO and the CFO both go to jail and the corporation went bankrupt would be the result of John and Ralph’s action of fraud.
Following the Enron case, if I were to structure a company to avoid situations such as the one described in the hypothetical and others that have been discussed in class would be to promote better corporate culture in the company by giving seminars, bring famous speakers that have been through unethical situations and have learned from their mistakes, have organizational in the company from the top leaders to do the right thing and be great role models to all employees, and AVOID personal issues that will do wrong to the company. Biased board of directors and have a great Human Resources program. I would create a systemic where if things are going wrong find the ethical solution to fix it without breaking the law, be ready and prepare everyone else for any changes around the company, set up a program to check everyone’s movements because as we all know, preaching ethics and excluding unethical employees is not very effective action so by controlling everyone’s movements will have me in control of everything that goes around the company making sure no one is committing fraud and also making it very clear to all employees that illegal actions are not tolerated ever in the company and will have serious consequences.
And finally, the measures I would implement in a company to promote ethical conduct would be Check and Balance. Use two different accounting firms to make sure the company is getting the same records in both and that there’s not fraud committed. Also change the auditors every 3 to 4 years to make sure they won’t commit fraud on the long run. I would also have every employee address the 6 questions of my company when making decisions; 1. How would the decision make me feel about myself? 2. The Golden Rule. 3. What would others think of you? 4. Is the action illegal? 5. Who is affected? To what extend? How? 6. Could the decision become a habit forming? These questions are very important because the answers will give them the right decision to make and they should know better to not cause the company any illegal dilemmas. As the leader of the company I will also never give up on preaching ethics no matter if its effective or not because it will make it clear that honesty is very important if you are working for me. I will also show cases like Enron, and have seminars to get my point across and teach my employees the right ethics to be successful.