Intoday’s world, ethics became a significant part of the environment.
Ethicsrefers to the morale, values and rules which tells what is the right thing todo. Business also includes ethics which governs the operation of businesses andhow to take decisions as well as how to treat people. Ethics in company can bedescribed as behaviour, ethical principles or worth that requested in the globeof commerce. The acceptability of company ethics can be ambitious by client andcompetitors.
Business ethics are implemented so as to become belief amid clientalongside the company organization. Itis extremely vital in requesting ethics in company because the company can besuccessful after become the belief from the clients, vendors, suppliers andstockholders. A positive ethical atmosphere also improves the morale amongworkers which leads to increase in efficiency and effectiveness which result inachieving of organisational goals. In this essay I am going to talk about theimportance of business ethics in corporate reporting and ethical issues thatlead to corporate collapses. (E.
Merrick Dodd, 1932) Roleof Business Ethics in Corporate Reporting CorporateReporting refers to the disclosure of the financial information of the companystating its true financial position. Corporate Reporting is one of the mostimportant functions of the organisation and it also requires a higher code ofethical behaviour. It helps the shareholders in the decision of buying andselling of financial instruments of a company and makes other financialdecisions. (Ms Meera Eeswaran, 2016)Thecorporate reporting includes various accounting principles that guides theoperations of the organisation as well as ensures that the information providedin the financial statements depicts true financial strength of an organisation.
Some of the accounting principles are as follows: Fair presentation ensures that financial statements are completeand error free. It helps the users to make decisions by using the informationand helps reaching their goals. Goingconcern is the assumption that an entity will remain in business forforeseeable future. Accrual basis statesthat the business transaction will be recorded only when they occur.
Full disclosure ensures that allinformation which is provided to investors will not be misleading and is up todate. (Kamran, 2012)Therefore,these principles seem simple and easy to understand but their applicationinvolves complex issues, judgment and decisions especially in case of complextransactions. The existence of complexities and use of judgment providesopportunity to adopt different bases of measurement and recognition of items infinancial statements that may create some financial reporting issues. (Kamran, 2012) Ethical reporting issues in major corporatecollapses and scandals Thereporting issues themselves are not the reasons behind fraudulent or misstatedfinancial statements. The main reason behind such practices is ethics failuresthat represent breaches of fiduciary duties by individuals who acceptedresponsibilities but do not fulfil them. Some of the cases of corporatecollapses and scandals are as follows: (O. Kavrar and B. Y?lmaz, 2017) Case- 1 ENRON wasone of the most famous companies in the world, it was an American energycompany based in, Texas.
The Enron scandal was revealed in October 2001, inwhich the executives’ staff used special purpose entities, Accounting loopholesand poor financial reporting to hide billions of dollars in debt from faileddeals and projects. There was a downfall in the reputation of Arthur Andersenbecause he found guilty in destroying documents illegally which further goingto be used for SEC investigation. The main reason behind company got bankruptwas truthfulness, the lack of truthfulness by management about the company andthe duties that was owed like full disclosure and good faith acted against thecompany. (Yuhao Li, 2010) Case- 2 TYCO internationalwas globally diversified company that provides vital products and services tocustomers in four segments: electronics, healthcare, fire and security andengineered products. The Tyco corporate scandal of 2002 focuses on the problemof unethical business practise, its CEO Kozlowski was involved in financialtransaction that were not included in the financial report of the company. Hewas also illegally involved with other Tyco officers and lower rankingemployees to cover up for Kozlowski illegal financial transaction. Kozlowskifound guilty as he stole millions of dollars from Tyco.
(Andrew Ross Sorkin, 2002) Case – 3World Com was one of the largest long distancetelecommunication companies. In 2001 it was announced that the companyoverstated earnings by more than $3.8 Billion, this announcement stunnedfinancial analyst and also had effect on the financial market.
On June 26 the companywas charged with massive accounting fraud by Securities and Exchange Commission(SEC) and was also charged against destroying financial records of the company.It was the second biggest U.S scandal and its former CEO and founder of thecompany Bernard Ebbers was sentenced to 25 years in prison in 2005. The mainreason behind this scandal was that the company executives and employees triedto hide the true financial position of the company by destroying its financialreports. (Bob Lyke, MarkJickling, 2002) Case – 4HIH Insurance wasAustralian company which was collapsed on 15th march, 2001 and wasAustralia largest failure in business history. The company was in the debts ofA$ 5.
7 billion and the reason is that the companies director, employees, auditorand advisors was involved in unethical practises and the other reasons was poorrisk management and corporate governance, incorrect accounting for financialreinsurance contracts and poor cash management. (Ali M. Yaftian, Damien Cross, 2005) Case – 5XEROX wasphotocopying and printing company in America and leaded to the scandal byoverstating its revenue during the past five years by almost $2 billion. Thecompany misled the investors by manipulating the financial reports. The companyalready settled SEC charges by paying a $10 million fine. The main reason thatresulted in the company downfall was failures to write off their mounting baddebts and improper classification of transactions. (Amy Butala, Zafar Khan, 2008) CONCLUSION After studying all thearticles and journal described above, I can definitely say that business ethicsplays a very important role in the proper functioning of the organisation as ifthere is a consistency in ethical behaviour this will definitely lead topositive public image. Moreover, it’s Accounting principles helps in thecorporate financial reporting of the company and reveals its true financialposition.
In the above corporate collapse cases most of the failures andbankruptcy happens because of not following the ethics, lack of self-disciplinein the individuals and because of the individuals who have the incentive andopportunity to breach the ethics. Therefore, there is an immediate need toprevent these failures as one need to change their mind-set regarding businessethics, the companies should follow the accounting principles so that theinvestors and public can put their trust in them and this will definitely helpthe organization in increasing of their goodwill and profits.