Review of Accounting Ethics
ACC 557: Financial Accounting
Professor: Dr. Khaled Abdel Ghany
July 24, 2013
Recent corporate scandals in the Unites States and elsewhere have led to a wide-ranging re-examination of standards for corporate governance with repercussions that extend also to financial regulation.
Good leaders strive to create a better and more ethical organization. Restoring an ethical climate in organization is critical, as it is a key component in solving the many other organizational development and ethical behavior issues facing the organization. Unethical behavior has drawn the attention of the ...view middle of the document...
A firm’s unethical behavior could also contribute to the organization’s productivity level being lower over time. Because of all these aspects I believe that the current business and regulatory environment is more conducive to ethical behavior.
The transparency which is an essential part of models of corporate governance depends crucially on the satisfactory performance of accountants and auditors. Enron Corp. was an energy company born from a mildly innovative 1985 deal that combined two boring businesses: an Omaha-based natural-gas-pipeline company named InterNorth and a similar Texas company called Houston Natural Gas. Instead of just delivering gas to customers at a modest profit, Enron decided to use newly deregulated pipelines to match other buyers and sellers in the energy industry. Enron became a gas trader, which would be much more exciting than just building pipes and transporting gas. Moreover, Enron would also expand into other business areas, including water, fiber optics, newsprint, and telecommunications.
A conflict of interest occurred in Enron by hiring and paying its own auditors. It is understandable that the auditors did not issue an adverse report on the company that was paying them. If ethical audits were to become part of normal practice, further thought would need to be given to their contents, their target audiences, and the identity of those who would produce them. Enron was managing its own employee pension funds. This should not happen because it allowed the company to use these funds for the advantage of the company only, without taking care of their employees. Besides, Enron should have a code of ethics that prohibits managers and executives from being involved in another business entity that does business with their own company. Usually, codes of ethics are voluntary, but the board of directors should set them up as the important restriction of company. Legal structure permits managers to enter these arrangements, which constitute a conflict of interest. There are no doubts that Enron’s officers did not act within the scope of their authority. A few days before the outstanding loss of Enron was made public, workers who audited the company's books for Arthur Andersen had been given an extraordinary directive to damage all audit material, except for the most basic "work papers.
Enron Corporation is a classic example of organizational-level corruption. “According to Report of Investigation by the Special Investigative Committee of the Board of Directors of Enron Corp (2002), Enron employees involved in the partnerships were enriched, in the aggregate, by tens of millions of dollars they should never have received. Many Enron transactions were designed to accomplish favorable financial statement results. These examples show that Enron’s officers put their own interest ahead of their obligations to Enron. The company allowed chief financial officer Fastow to set up partnerships that enabled Enron to...