Ethics and Ethical Dilemma: In accounting, ethics is defined as stipulated guidelines that consist of set up rules and regulations that govern the moral standards of accountants as they conduct themselves in the accounting profession. Different ethics are formulated by different institutes to govern different professions, for example, ethics governing auditors are formulated by the Institute of Internal Auditors (IIA). An ethical dilemma refers to situations that professionals undergo that forces them to choose between doing what is right and moral or compromise the whole situation and, thus, engage in malpractices that is either meant to favor the individual or the organization as a whole.
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Fair living requires someone to “do to others what they want others to do to them”. This is also the golden rule. It’s positive to be honest and accountable in whatever undertakings someone is involved in. For instance, there was a time I was required to illustrate my honesty by providing correct and fair information so at to reveal who really had stolen a classmate’s camera. I was to provide a name of the last person I had left in the class before leaving for lunch. The last person that I left in the classroom was someone I knew well and so I was somehow reluctant to provide a name but since ethics of the school stipulated that a student was expected to provide correct and unbiased information at all times, I did the right thing in the long run. At a company level, the scenario may be complex and, hence, difficult to understand. A company may be faced in a dilemma that will require it to provide a false representation of its financial statements so that it may attract a large volume of potential investors. The ethical dilemma at this juncture involves whether the internal auditor will be bold enough to provide the public with clear and truthful financial statements or rather succumb to internal management pressure and provide false information to both potential investors and the government; the latter meant for evading taxes.
Corporate Social Responsibility (CSR): The phrase “corporate social responsibility” is defined as channel through which firms try hard to check on their relationship with both internal and external environments so that firms remain accountable for the different impact of actions that they engage in during their operations (McDonald, 2008). The major significance of CSR to the society is the fact that it regulates a firm’s day to day operation so that it remains within acceptable levels. This acceptable level is important to the organization since it guarantees its continuity of operations in the environment upon which it undertakes its activity. On the other hand, it is important to the society since they will always live under a favorable environment free from pollution and corruptible activities. An example of an organization that engages itself in corporate social responsibility is Barclays Bank. Barclays Bank practices CSR to its customers by providing better and quality products. They act towards providing a good salary package to its employees and also pay its taxes on time to the government in session (Barclays Bank, 2011).
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Enron: It’s evidently clear that the events which lead to Enron’s downfall were considered simple and straightforward as the company was found on the basis of personal and collective greediness, market elation and corporate conceit. This came up when potential investors, employees and economic analysts believed that the company was too good to be true, hence, many potential investors embarked on buying more and more stocks of the company. Meanwhile, the company engaged itself in high risks deals which in essence could not be supported by the company’s usual assets risk control process. These investments went sour in the early 2001 and the company immediately went into a plunge of debts since it had lost the trust of both the investors and creditors. There was an element of inconsistency on how the company disclosed its financial statements to the public. The statements were termed as erroneous and misleading. Billions of dollars were omitted in its liabilities and losses, thus, catapulting the downfall of the organization as a whole.
Arthur Andersen, a representative of an organization that had been contracted by Enron for the whole year to provide auditing services. They were independent contractors who were required to provide the fair and true representation of the company’s financial statements. Vinson & Elkins was Enron attorneys and they represented the organization legally. Sarbanes-Oxley Act of 2002 facilitates the obligatory rule of organizations to disclose their financial statements truthfully and fairly. The same act did put tight measures that included heavy penalties for organizations suspected of manipulating their financial statements to fit certain settings. Mark to market accounting or rather fair value accounting refers to a requirement that obligates companies to adjust balance sheets at a particular quarter to a specific market value and in turn provide a record for gains and losses to the income statement of the same period. This practice is only depicted in energy-related companies.
Jeff Skilling was a young consultant hired by Enron’s CEO, Ken Lay, to take care of the organization’s credit portfolio so that Enron would be placed in a position that will enable it to buy gas from a network of suppliers and then sell it to a network of consumers. He created a new product and a new paradigm shift in the energy sector. Ken Lay was the company’s Chief Executive Officer until his retirement on February 2001. Sherron Watkins was Enron’s vice president who was considered the whistleblower as she had wrote a memorandum to Kenneth Lay claiming that there was a failed disclosure of the substance of related transactions run by Fastow which, if ignored, could have lead to accounting scandals. Andy Fastow was a Kellogg MBA graduate who had been working on leveraged buyouts and under Skilling leadership he was promoted to Chief Financial Officer in 1998. He was also the man behind “Special Purpose Entities” (SPE) in Enron (Healy & Palepu, 2003).
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WorldCom and AIG are two other companies that suffered accounting scandals in the early 2000’s. WorldCom suffered a major setback in 2000 when it was barred from engaging in the merger with Sprint. Its CEO Bernard Ebbers was indicted of corruption by financing his personal business with the organization assets and in April 2002 he was finally replaced with John Sidgmore, former CEO of UUNET (Grynbaum, 2008). In AIG, the setback appeared as a result of downgrades put upon its credit rates forcing it to undergo liquidity crisis. The CEO, Maurice Hank was replaced with Robert .B. Willumstad.
A whistleblower is someone who decides to come forward and exposes unethical practices carried out in an organization. A Dodd-Frank Act allows whistleblowers to receive awards for reporting fraudulent activities within their profession. Whistleblowers are protected by the act from threats and counter-backs (Stauffer & Kennedy, 2010).Other whistleblowers are Michael Woodford of Olympus Corporation who revealed past losses that were paid in excessive fee payments and Wendell Potter who testified against the CIGNA in the US Senate in 2009. I feel that the two were courageous and frank about the matter at hand. Fiduciary duties refer to legal obligation that requires someone to act in favor and at the best interest of the other party (Amanda, 2002). Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDO’s that AIG had insured in order to ensure CDO’s at a lower value. Fair value accounting rule refers to a rule that was put forth by FASB to oversee the relevance of financial statements as put forward by organizations. It advocates for continued consistency and comparability between financial materials so that fair value is attributed as part of the measurement for relevance of accounting information.