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Ethics issues in the accounting professions
Ethics issues in the accounting professions
Ethical issues of financial accounting
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Ethicality of Accounting Activities
Worldcom was a telecommunications company that merged with MCI in 1997 and was renamed MCI Worldcom. Worldcom was the United States second largest long distance phone carrier, until the accounting scandal in 2002. In 2002, a lady named Cynthia Cooper found discrepancies in their accounting. Someone was cooking the books by moving money around and recording it in places it should not be.
The main accounting activities involved in the Worldcom case are auditing. If it was not for Cynthia Cooper reading an article “Accounting for Anguish” that was written in the Fort Worth Weekly on May 16, 2002, about a former financial analyst with the company they would never have found the fraud that Worldcom was doing. After she read this article Glyn Smith suggested they do an internal audit immediately (Mintz & Morris, 2011).
The AICPA Code of Professional Conduct is to keep CPA’s responsible for their actions they take. They need to be honest, have integrity, and stay objective. In the case of Worldcom, the CPA’s did not stay to the AICPA rules of conduct. The CEO or CFO did not let an accountant know what they were doing with the funds, and this made the accountants lie on their financial statements. This is why a business needs to be audited every few months, it helps to see if a company is following the rules and doing what they need to do.
Using financial statements for a business will tell them what is coming in, if there is any money missing, and how much money the company is putting out. Financial statements will also prove if the business will stay afloat or will go bankrupt. Worldcom wanted to make more money and stay afloat so they cooked their books to make it look like they ...
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... unethical when he did not believe Cooper when she had the proof there was something wrong. He would rather ignore it than deal with it. Once she got a higher up boss involved he decided to do the ethical thing and deal with what was happening to the business. If it was not for her actions it could have been worse for the stakeholders who were investing their money into the business.
When Cynthia Cooper decided to look into why Worldcom books were showing why two accounts disagreed on the amounts, I do not think she realized how big of a problem they had at the time. If every company had someone like Cynthia Cooper I do not think they would go bankrupt or cheat other stakeholders.
References:
Mintz, S. M., & Morris, R. E. (2011). Ethical obligations and decision making in accounting. (2nd ed.). New York, NY: McGraw-Hill/Irwin.
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While the widely exposed and discussed trials of WorldCom's and Tyco's top executives were all over the media, one of the most interesting cases of securities fraud was happening without any public acknowledgement.
Investors and the media once considered Enron to be the company of the future. The company had detailed code of ethics and powerful front men like Kenneth Lay, who is the son of a Baptist minister and whose own son was studying to enter the ministry (Flynt 1). Unfortunately the Enron board waived the company’s own ethic code requirements to allow the company’s Chief Financial Officer to serve as a general partner for the partnership that Enron was using as a conduit for much of its business. They also allowed discrepancies of millions of dollars. It was not until whistleblower Sherron S. Watkins stepped forward that the deceit began to unravel. Enron finally declared bankruptcy on December 2, 2001, leaving employees with out jobs or money.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
...urvey of ethical behavior in the accounting profession. Journal of Accounting Research, 9 (2), pp. 287-306.
Dennis Kozlowski, is the former Chief Executive Officer (CEO) of Tyco International Ltd. During his tenure, Kozlowski engaged in activities that were considered unethical. In 2005 Kozlowski was convicted of misappropriation of corporate funds. Kozlowski had been involved in illegal and unethical behavior during most of his tenure. The findings that lead to the conviction of the former CEO were due to the persistent questioning and interrogating tactics of the shareholders and stakeholders because Kozlowski held within his authority to make decisions that could change the course of the company. Business ethics, auditing practices, and government regulations will forever be affected by the $500 million loss endured by the company. Needless to say this scandal had an major impact on the economy and the business world.
Rather than being sticklers for following GAAP accounting principles and internal controls, this company took unethical behavior to a whole new level. They lied when the truth would have been easier to tell. It is almost as if they had no comprehension that the meaning of the word ethics is “the principles of conduct governing an individual or a group (professional ethics); the discipline dealing with what is good and bad and with moral duty and obligation”, (Mirriam-Webster, 2011). To be ethical all one has to do is follow laws, rules, regulations and your own internal moral compass, all things this company seemed to know nothing about.
Therefore, this could be the opportunity that Cooper could show her loyalty to WorldCom or take leadership by working with the upper management levels to fix the internal problem. According to Dr. Kant, the exchange of our sentiment is how we communicate. Dr. Kant also illuminated the importance of truth. Without truth, we would only exchange bad information, missed statements, straight out lies and our conversation has no purpose. At some point during the process of building and developing WorldCom, truth was absented from all levels of management. Cynthia Cooper is one of the managers at WorldCom; therefore, should have been more involved and aware of the current situation from the beginning. Thus, is doing the right thing is the right thing to do or is it ethical thing to do? For instance, by going public with the problem, which is the right thing to do, but is it ethical for many careers and lives to be ruining as the consequences of doing the right thing? Maybe Cooper should have considered the utilitarian approach when assessing this dilemma. Cooper should have compared the possible beneficial and negative outcomes of each action. She believed she was doing the honest act, but it ended up bankrupted the company and many lives were
...ent expense the year it incurred. Due to the reporting error, in 2001 $3.055 billion was misclassified and 4791 million in the first quarter of 2002 (Law Maryland). In order to avoid getting caught, WorldCom was trying to be slick by leaving some line costs as current expense so that the error in classifying would not be easily detectible. This error in classifying expenses cause WorldCom to increase net income and assets. This fraud was found by the companies internal audit, Cynthia cooper, on May 2002. This detection was not good news to Arthur Anderson as they were the outside auditors of WorldCom. Anderson had already been affected by Enron scandal and neglecting to do to their job correctly. But with WorldCom they claimed that the chief financial officer Scott Sullivan did not tell them about the line costs being capitalized and they were unaware of this fact.
Bean, D. F., & Bernardi, R. A. (2005). Accounting ethics courses: a professional necessity, CPA Journal, 75(12), 64-65. Retrieved Jan 15, 2006, from Business Source Premier database.
The auditors were more concerned with keeping the WorldCom account and should have been unbiased and independent in their decisions. Andersen even undercharged WorldCom as he looked at is as a bond in their long term relationship. Andersen’s “more efficient” method of auditing after WorldCom’s operation expansion skipped detailed individual transactions for
Lyke, B and Jickling, M. (2002). WorldCom: The Accounting Scandal. CRS Report for Congress, p2.
Later in 2003 another issue for the Boeing Company arose which was that documents that belonged to the Lockheed Martin were in the possession of the Boeing managers. This allowed Bowing to have an advantage of the defense contract with the federal. After this Boeing was stopped by Pentagon form bidding on any federal contracts for 20 months which caused CFO Michael Sears to be fired after this incident. After Michael Sears was fired and was put into jail for hiring officer Darleen Druyum, She had made a purchase ...
telecom giant WorldCom Inc. Ms. Vinson’s work began to change in 2000, when the telecommunications industry was in a slump. The company had 685 million dollars in unpaid bills and they were far off from their target profit. Then
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.
The aim of this paper is to provide the framework of the current professional accounting code of ethics. What are the ethics and how we define them? In this report we try to determine the main ethical principles that will establish the right and