Materiality is defined by the FASB as an omission that would affect a normal person by a misstatement such as using earnings management to skew the true earnings or revenue. This calls in to play the unethical behavior that earnings management places on the public (violating AICPA Code of Professional Ethics). SOX further required management and accountants to be cognizant of the material errors that financial misstatement and false reporting could have from an ethical standpoint. It holds them accountable for all financial reporting from their company. This includes criminally and financial accountability.
The company inflated the assets and made the entries seem as though they had income. The Code of Professional Conduct of the American Institute of Certified Public Accountants establishes rules and principles for the accounting profession to follow. The actions that were taken by the executive team at Worldcom violated the guidelines that had been established to protect the industry, government and the public. Generally accepted accounting principles require that a company expense the lease costs as they
(INTRO) One of key accounting activities this WorldCom case points out is how WorldCom capitalized leased lines which brought little or no value to the organization, but were accounted as capitalized assets, and the impact this can have on external users. “To maintain and broaden public confidence, members should perform all responsibilities with highest sense of integrity.” (AICPA.com) By capitalizing the costs of these leased lines instead of it would have shown a significantly lower net value of the company. It would have negatively affected cash flows and all the ratios. This activity certainly discredits the profession. It does not offer the fullest disclosure, objectivity, and transparency.
The corporation has been unable to leverage competencies across subsidiaries. This was attempted by acquiring Blockbuster and Paramount. Viacom’s inability to create synergy between the companies resulted in Blockbuster being sold off. Management seems to have always been strength to Viacom but now it is a liability. The majority owner and mastermind behind the company Sumner M. Redstone, is too frugal.
Employees have the same opportunity to perform unethical accounting activities as the top executives. If an employee fears getting fired for making a mistake with the accounting transactions, the employee may decide to make adjustments to hide the mistake. This mistake could result in large amounts of money either gained or lost to the shareholders and the organizational could take disciplinary action to correct the problem. Another reason that employees could make unethical decisions with the accounting practice is for sabotage. If an employee becomes frustrated or feels the need to retaliate
Why: A bank should ensure a strong compliance culture throughout its organization, where the board of directors and senior management set the right tone. The board of directors and senior management (including Head of the business and Supervisors) should set a clear risk appetite and ensure a compliance culture where financial crime is not acceptable. How & Who: Identify risk and performance indicators, both qualitative and quantitative – Front Office (5) Business units should identify robust controls to detect illicit activities. They should be allocated sufficient resources to perform this function effectively. – Front Office (5), and collaboration with in concert with Credit, Market and Operational Risk Department (4), Compliance Department
The Legal, Ethical, and Technological Concerns Paper Bradley J. Smithson Grand Canyon University: Business 340 Ethical and Legal Issues in Business Instructor: Professor James Goff 8/01/12 Ethical and Legal Accounting Obligations Ethics and the importance of Legal accounting methods as well as considering the process in which to arrive at ethical solutions in corporate decision making are most prominent issues today because of a history of competing for success in today’s culture of profit without cost culture and fraud. There can be many influences and pressures placed on decision makers as well as stockholders, creditors, and other parties affected by financial performance. There are offers of insider trading, overlooking or excluding important data that could affect the decision of a company officer of Board of Directors. A survey of management firms who dealt in investments discovered that nearly three-quarters of the professionals taking the survey felt that disreputable conduct, such as personal trading, insider trading, and fraudulent financial reporting are areas of alarm. Added assessments indicated that approximately half of over 700 human resource experts said they feel pressured to cooperate in reducing their administrations' standards of ethical business behavior.
Ethicality of Accounting Activities While reading Cynthia Cooper’s account of what led to the WorldCom case our team discovered that it was not one person’s fault. Accounting issues may begin from the top, but it takes the rest of the accounting team to continue to contribute to the fraud. Our team learned that because the CFO, Scott Sullivan, of WorldCom created a prepaid capacity account that seemed viable within the capital expenditures to the rest of the employees it led to a scandal within the company. This scandal involved many people from Cynthia Cooper and Glyn Smith, the determined internal auditors, to Betty Vinson and Troy Normand, members of the accounting department staff (Mintz & Morris, 2011). One of the key members of this case is Scott Sullivan the Chief Financial Officer of WorldCom.
I conclude that although the abuse of the profession by investment institutions aggravated the financial crisis, accounting cannot be said to be a root cause. Second, I look at the potential of accounting to help with the resolution of the financial crisis. I argue that by enhancing the accounting standards and acting to eliminate weaknesses therein, accounting can play a significant role in aiding the global economy to recover. Several allegations have been made against the accounting profession, accusing it of precipitating the financial crisis. Of these, I believe two in particular depict the role of accounting in the financial crisis, these being the effects of fair values and the overly complex (and thus allegedly detrimental) nature of financial reporting.
The case of Enron is said to be a “smoke and mirrors” act dictated by top executives presenting the positive financial wealth of the company. Shareholders, lower executives, employees, and most American’s were not aware of the grieve financial trouble the company was enduring. Company Culture Enron’s motto was “respect, Integrity, Communication and Excellence” and along with that its Vision was “Treat other as we would like to be treated ourselves…” Both the motto and vision were inconsistent with the actual company procedures. Enron had a much different approach to the company culture and reward system they actually used. Competition was the main concept; which led to numerous financial mistakes in future years.