Ethics And Scandals In Financial Reporting Accounting Essay

Ethics And Scandals In Financial Reporting Accounting Essay Integrity is of utmost importance for a successful career in business and finance in the long run. Some believe that the world of finance lacks ethical considerations. Whereas the truth is that such issues are prevalent in all areas of business. The business environment in much of the world is reeling from the revelation of several financial scandals in the past few years. The optimism of the turn of the century has been replaced by scepticism and distrust. It will be discussed as to how we landed ourselves in this situation, what is being done to correct it, and what the future holds for us. Though Enron has been used as the poster-child for this purpose, breakdowns in accounting and corporate governance in Enron as well as in other companies will be discussed. Some companies that have encountered financial reporting problems will be discussed along with the role of auditors (including Andersens role in Enron), the regulatory environment, some of the causes of the problems, and the current and possible future outcomes. Ethics and Accounting Ethics (maintaining true and fair statements) is a key part of financial reporting. For shareholders to trust a company with money, they must feel confident in the companys financial reporting. Financial reporting presents all data relating to the entitys  current, historical and projected health meaning investors and shareholders rely upon the available financial data for making informed and educated decisions. To help entities comply with business regulations and maintain financial reporting, shareholders can trust the existing organizations designed to watchdog different aspects of the accounting world. Primary among the organizations are the Securities and Exchange Committee (SEC), Financial Accounting Standards Board (FASB) and Public Company Accounting Oversight Board (PCAOB). These three bodies together ensure financial reporting is fair, reliable, and available to all investors. The specific importance of ethics in business and in financial reporting is to inspire and ensure public and investor confidence in companies. Without a strong code of ethics, and adherence to that code, individuals may not be certain their investments are secure. Accounting professionals must have a strong ethical and moral reasoning as their decisions regarding financial reporting can have major consequences for individuals as well as corporations and entire nations. Ethics in the business environment are more than just issues that relate to accounting; because ethical practices can and will cross boundaries from business practice in to what a company may ask its accounting professionals to do in financial record-keeping and recording. The many recent scandals involving accounting fraud generally began at the CEO and made their way down into the financial records. Before the Sarbanes-Oxley Act, various financial abuses such as WorldCom, Enron, and Adelphia Communications plagued the American public and affected economic health of the entire nation adversely. Most of these frauds stemmed from unethical accounting practices instituted at the highest levels of the corporations, but carried out in the financial reporting practices of public accounting firms. In December 2001, Enron, which used to be one of the worlds leading energy companies once, filed the largest bankruptcy in the history of the U.S., using the retirement accounts of thousands of American workers, to enrich those at the highest levels of the corporation. Using thousands of off-the-records partnerships to hide nearly $1 billion in debt and to inflate profits, company had defrauded shareholders of billions. Due to these scandals, President Bush and Congress were forced to take tough stance in the form of the Sarbanes-Oxley Act in July of 2002. When ethics seem to be on the downfall in a society, the common man naturally turns to the government for guidance. Various crises in the history of the United States have led to creation of several regulatory bodies and laws. The three entities in the US, mentioned above, work closely together to ensure financial accounting is honest. The SEC, the FASB, and the PCAOB are each an independent entity, but they often work in cooperation in certain areas such as oversight and reporting. While these three bodies work together, they rely on cooperation from member companies and from participation from whistle-blowers in companies and public citizens. As the Enron collapse illustrated, there were systemic failures in the private-sector watchdog-groups. The SEC and the PCAOB must work closely together and include way to fast-track criminal cases. Enron and other financial reporting scandals Enron was a great symbol of widespread problem in corporate America as its rise was as spectacular as its fall. Enron, formed in 1985 when Internorth purchased Houston Natural Gas was soon being run mainly by Houston Natural Gas executives, with Ken Lay as CEO. In 1990, both Jeffrey Skilling and Andy Fastow were hired. In 1996, Skilling became the President and COO. A meteoric rise in both reputation and stock value came by, with Enron being named as one of Fortunes most admired companies in 2001 and its stock price peaking at $90.56 a share as on August 23, 2000. Much of the companys success was credited to the financial wizardry of Fastow. However, companys fall was just around the corner, with Skilling resigning in August of 2001. This was followed by a $1.2 billion write-off, and the beginning of an SEC investigation in October. By December, Enron had declared bankruptcy and the share price was $.26 per share. If Enron had been a lone case, concern would have dissipated quickly and confidence in capital markets would not have plumped. But it was not so. Before Enron, there were companies such as Waste Management and Sunbeam not significant by themselves, but they should have acted as a warning of what was to come. After Enron the disclosures kept coming. WorldCom was caught capitalizing expenses. While Enron was trying to outsmart the accounting and capital market regulators, WorldCom made accounting errors that even novice accounting students would know were inappropriate. A disturbing aspect of many of these scandals is the collusion among many executives. An important observation is that all of these scandals cant be attributed to one factor alone. Each one was different. Hence it can be concluded that the solution is not easy to find. There is no single accounting practice that made these entities vulnerable to executive excesses. What these scandals had in common was a culture that was pervasive in corporations. A culture had come in that made it permissible to lie to shareholders and the markets. The ends justify the means became the corporate mantra. Also, the watchdogs, the auditors had turned a blind eye with their focus just on their consulting businesses. They were not as vigilant as they should have been in audits. The auditors role in ensuring fair play Auditors are supposed to protect the public from the types of abuses that have been seen in the past. Even though financial statements are responsibility of management, the shareholders hire auditors for the protection of their interests and to add credibility to financial information provided by the firms. To be credible, auditors need both expertise and integrity. Expertise assures if there is a financial reporting irregularity, the auditor has the capacity to discover it. Integrity assures that auditors will disclose any irregularity they may find. These two qualities are essential. They are also multiplicative that is if either is missing, other has no value. It has been found that both were missing in many cases. Expertise was missing as audits had come under cost cutting measures of firms. This happened often at the cost of quality. Integrity was gone when auditors forgot that the first allegiance of a professional is to the public. Seldom did auditors betray management for the benefit of the public. Hence, even if they did discover reporting problems, rather than reporting them to the public they often helped management devise ways around the reporting problems. Auditors fell into this position (probably not because they were incompetent or unethical but) because of the cultures in major accounting firms. Andersen, Enrons auditor, is a classic example. There were good auditors who got caught up in an economic struggle leading to undue focus on revenue generation. An audit firm having the highest reputation for competence and integrity compromised on its values as that was the only way its partners thought to be economically competitive. In the more recent Satyam case in India, the fraud started at the top level management and reached the financial records. The role of Pricewaterhouse, Satyams auditor, is also controversial in the said scandal. Causes of financial reporting problems The regulatory environment had not changed suddenly then why did the financial reporting problems surface at the time, is a question to be pondered upon. There are many reasons, not one that dominates. It was a confluence of circumstances that opened eyes to the problems. The bursting of the bubble economy was a major reason these financial abuses came to light. When everything was seemed bright, nobody questioned companies financial reports. In accounting the lack of relevance of historical cost accounting and even the basic traditional accounting framework were being discussed. The new economy was not to last forever. And when it did not last, investors began to ask tough questions. For many of the questions, there were no answers only denials and cover-ups. In the auditing profession, audits had become loss leaders. The balance sheets and income statements had lost value, so auditing of the statements was not important. Thus, many audits became hasty and more of a formality. No one was willing to pay for quality audits, so many audit firms believed there remained no sense in competing on the basis of quality. Cost drove audit decisions. Lower cost even with lower quality was the norm. The passivity of corporate boards was also a contributor. This was worsened by the growing number of complex financial transactions, most of which were beyond understanding of board members, who had gained their experience before such instruments came into being. Even a former accounting professor heading Enrons Audit Committee, a person of utmost integrity, had difficulty understanding the implications of the companys financial manoeuvring. Finally, the biggest culprit is the corporate culture. Focus was laid on short-term gains forgetting about all long-run considerations. Also the executive scorecard became focused on salary. Many players had become greedy executives, investors, and attorney, among others but more than that was the need to compete on the basis of compensation. Implications for accounting educators The perpetrators of most of financial reporting scandals are former students, graduates of accounting or MBA programs. So educators must ask themselves: What are they doing wrong and what must they do to fix the problems? The first obvious reaction is to emphasize ethics in business and accounting curricula. This is important. Educators in a business ethics class can not dissuade someone who is inclined to commit a fraud from doing so. But it is also true that most perpetrators did not at the onset set out to commit a fraud. They simply got ended up on a slippery zone. Also, the most disappointing aspect about most of the scandals is the number of people who, (though not personally involved) knew what was happening and still did nothing. Exceptions to the rule are some courageous whistle blowers, many of whom were products of university accounting programs. Thus, the focus of ethics classes should be to recognize and analyse the situations that can lead to compromise on ones ideals and values, and to promote the reporting of inappropriate behaviour. This can be best done in context because ethics issues come up in context, with you imagining yourself in the real situation. It is easy to go into an ethics class and give the answer that the instructor wants. It is an altogether different thing to put ones self in a case situation with conflicting pressures, and determine the appropriate action when ethics is only one of the many factors impacting your decision. Conclusion The accounting profession is in the middle of a challenging time. A reputation gained over years and decades can be lost in a day. Accountants were thought of as persons of high integrity working at an uninteresting job. In the current scenario the job has gotten more interesting, but at the cost of their reputation for integrity. It is essential to win back the trust of the public and maintain their belief in the importance of accounting. The road to restoring integrity of accountants today is a long one. The job will neither be quick nor easy, with the new series of financial reporting scandals that have come up.

International Coffee Market Essay

Due to the international coffee bean price significantly fluctuate from 1996 to 2009, the global coffee also has same change between this year. This paper will look at changes on global coffee market based on five parts. First of all, describing several reasons cause variation of global coffee market. The second part will illustrate market structure of international coffee industry. Then, based on coffee market structure, explaining which strategy they are using and reason of coffee companies choosing these strategies. Furthermore, indicating the cost and benefit of strategy used by coffee companies. Finally, this paper would focus on the relationship between macroeconomic changing and coffee industry. Since global economic dramatically growing, there are three events effect coffee bean price in terms of new planting supplies, increasingly less coffee famers planting coffee beans and establishing new coffee market. Due to outstanding coffee beans productive capacity in Vietnam and Brazil, there are 113 million bags for supply and 106 million bags for demand, it is 40 million bags bean as a gap between demand and supply in 2002(John, 2010:37). As a support, John (2010:36) stated that when a or more than one crucial of supply change (except price events), the whole supple curve will shift. It is indicated by figure 1 in the appendix which shows S1 shift to S2, contributed by new significant supply (Vietnam and Brazil). As a result, whole coffee bean market get a new equilibrium point at e2 which has lower price in Pe2 and higher quantity in Qe2, comparing with e1. However, John (2010:36) also clam that most of coffee market workforce worked in poor financial circumstances that living as debt, and others abandon their land and property in farmland to migrated into city. Otherwise, lots of farmers in order to chasing higher profits by quit coffee industry, especially, Vietnamese famers instead growing coffee bean to illegal substances—coca. It is obviously decrease capacity of coffee bean production. Finally, some research reported that the annual GDP growth rate of China was approximately in 8%, which means Chinese disposable incomes increase steady from 1980. Consequently, with improvement of life style in China, the demand curve of international coffee production is shift (from D1 to D2). In that case, new equilibrium point move from e2 to e3 (figure 2). It is clear that price of global coffee bean price would be influenced by establish new market which mean other alternative factor of demand except price would shift demand curve, and equilibrium point would move into new position(John, 2010:36). The international coffee market is leaded by several roaster coffee firms which are classified as oligopoly Over half of international coffee productions are dominated by 4 firms: Kraft, Nestle, Procter and Gamble (John 2010:37), this market structure is named as oligopoly which include two main features. One of the main feature is, in oligopoly the dominated firms establish various barriers for preventing new firms entrance. In this case, new coffee roaster firms are tough to participate in this industry, because most percentage of coffee productions processing, which include processing line and coffee manufacturing technology, and coffee bean import or export market are under dominated firm control. However another feature is each of firms in oligopoly structure is compete with their rivals in changing price, adverting strategy and target market. This is supported by John(2010:136) who argued that anticipating rivals reaction is very essential and crucial for oligopolist adjusting their action. In the oligopoly coffee roaster firms, it is lack of competitor in this industry. Thus, these multinationals could influence merchandise of coffee in supermarket or retail coffee shop. In this case, these firms are easy making price of each coffee production, even price of global coffee bean is fluctuated during these decades. This is followed by an explanation, John (2010:37) argued when a consumer purchased a $3 regular cup of coffee, it is only include 25 cents cost of coffee bean. Most of consumer’s payments of coffee contained wages of staff, overheads and advertising expenses plus enormous profit earned by coffee roaster companies. In economic theory, firms could maximise profit when marginal cost (MC) equal to marginal revenue (MR). As result of price leader firms control the market average price, these firms could sell goods in a higher price but same quantity, in that case, oligopoly firm could earn more profit. However, in a non-collusive oligopoly situation which means evens few firms dominated the coffee market, each of rivals changing merchandise price and market strategy could significant influence other firms decision. This firm’s choice of strategy is known as game theory which is described by table 1 (John 2010:141). In today international coffee market, these coffee roaster multinational always alter their price or marketing strategy to attracting more consumers prefer to their brand or products. Otherwise, optimal strategy could beat other main competitors in international coffee market. This is followed by an example, Bhaskar (2009) indicated that Starbucks implemented a well-integrated marketing program that would utilize a marketing mix 4P (product, price, place, and promotion) that would satisfy the needs and wants of its target market. Especially, Paul (2009) reported that Starbuck recently offer $1 per bottomless in 8 oz, with unlimited refills to emphasizing Starbucks’ products with less price cost but higher value in normal business and social performance. Utilisation of these aggressive strategies Starbucks attract increasingly customers from other rivals and earn massive profit to becoming a multinational in global coffee market. Whereas, as game theory shows that both Starbucks and other competitor could not maximise profit for each parts. Furthermore, this competition between these firms could increase average cost in entire coffee market, as a result, profit of whole coffee industry would drop in a long term. In macroeconomic, the international coffee market contributed into two parts: unemployment and income. Householders willing to purchase more quantities than before due to disposable income increasing, when entire economic growth steady. Consequently, huge profit of coffee market is created by increasingly customer consumption. After that ratio of employment is growth, because coffee companies improve product capacity to content vast householders demand of consuming coffee in daily life. However, the rate of employment and disposable income of householders would decline, when the recession is coming. It is clear that relationship of householders and coffee industry could describe as a circular flow, each of these two parties influence to both sides in a significant effect in macroeconomic environment. To sum up, this essay has analyse a brief overview of alternative in nternational coffee market in five fields: firstly, the several direct reason of global coffee market. Secondly, it argued coffee market as a type of non- collusion oligopoly which using aggressive price and marketing strategy in coffee market. Furthermore, this paper also illustrates benefit and cost due to this strategy is used by dominated firm. Finally, the effect of macroeconomic in coffee industry is like a circular flow, which means coffee industry and householders could influence and relate to each other.

Lying, By Jeremy Bentham - 1613 Words

I am going to argue why lying is immoral no matter who you might be lying to, friends, family, and even someone you do not know. This is immoral because even though lying to someone may bring relief or happiness it’s still hiding the truth from that person. Hiding something they deserve to know even though it may hurt them may also be a form of lying. There are many situations where lying may end friendships, relationships, or even tare families apart because most people want to know the truth no matter how harsh, because eventually the truth may come out. In addition to hiding information, there are also other forms of lying. Telling someone false information as well as withholding information are forms of lying. The worst part about telling a lie is that the more you do it the more comfortable one may become. Lying becomes a habit to many people, a habit they have a hard time breaking. Lying can simply be defined in one word, deception. Jeremy Bentham who is a British philo sopher in the 1700’s and early 1800’s believed in the principle of utility otherwise known as utilitarianism. Jeremy Bentham thinks it’s permissible to tell a small lie because in the long run Bentham is looking for the ultimate amount of happiness. Bentham believes in the greatest happiness for the greatest number. As long as an act brings more happiness than disappointment then that act is moral. One situation may be three friends found out something that their other friend does not know but canShow MoreRelatedThe And Critique Of The Theory Of Utilitarianism1706 Words   |  7 Pagesthis paper I am going to argue that telling a small lie that would cause no great harm to a friend in order to spare their feelings is an acceptable thing to do. I am going to examine this issue through the perspective of important philosophers Jeremy Bentham(Utilitarian), then through Immanuel Kant(Deontology). 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Utilitarianism1441 Words   |  6 Pages Duty Ethics vs. Utilitarianism The two ethical theories I will discuss are from the works of Jeremy Bentham (utilitarianism), and Immanuel Kant (duty-ethics). These philosophers outlined two different theories of moralphilosophy. Bentham utilitarian theory focus on the moral rightness. His belief is that everyoneshould perform that act which will bring about the greatest amount of good over bad for everyone affected in any given situation. Kant’s theory and my personal preference ofRead MorePro Life And Pro Choice1403 Words   |  6 Pagesundeniable. These two conflicting views bring about very different arguments that must be considered when talking about abortion as an ethical issue. Part II. A. Jeremy Bentham is a Utilitarianist, meaning that he believes people should act in a way that promotes the greatest good for the greatest number. Consequentialist, like Bentham, focus on the positive or negative affects produced by an action. 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These two important theories will be analyzed and discuss in the relevance to Mikes options, for his situation. Utilitarianism is a consequentialist theory; by Jeremy Bentham and John Stuart Mill who were the first to develop this theory in detail. It is a consequentialist theory because ethical decisions should be made on the expected consequences of the action weather its right or wrong. The good: things that areRead MoreDeontology And Utilitarianism : Values And Society First Essay1398 Words   |  6 Pagesconcepts and decisions to frame our lives, giving structure to what we believe is right and wrong. More often than not, these concepts bring argument to what has already been set in stone by tough, controversial philosophers such as Immanuel Kant and Jeremy Bentham due to the nature of the topics and sensitivity they cause. 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New Zealanders Should Never Dream Of Being Cruel - 1604 Words

New Zealanders would never dream of being cruel to an animal. After all animals are sentient beings. Therefore they are capable of being aware of sensations and emotions of feeling pain and suffering. In today’s world, factory farming has become popular as they are cheaper ways to produce more output efficiently. The industry strives to maximize output and revenue while minimising cost at the expense of animals. The giant companies that run most of the factory farming have developed caging systems which allow for greater animals to be living in small crammed space for greater profit and output.These animals are deprived of exercise of that their body’s energy contributes more towards producing flesh, milk or egg. Drugs are fed and animals are being genetically altered to be grown fat so they could keep them alive longer. We as humans, eat a lot of eggs. Just over 3 million eggs are consumed by New Zealanders and the vast majority of these eggs are produced from factor y farmed eggs (Hibbard, 2014). The factory farmed hens are placed in small battery hen cages allowing space similar to an A4 size sheet. These animals have their beaks trimmed to minimise feather pecking and cannibalism in this overcrowded conditions. De -beaking is an extremely painful process, which is carried out with a guillotine type machine or chopped off with a hot knife machine that burns it off. Due to this factory farmed animals are not able to display normal natural behaviours including moving