Login Signup
Verified Document

Fraudulent Operations By Enron And Worlcom

Related Topics:
Financial Reporting Accounting Ethics Operations Decision Operations
Open Document Cite Document

Ethics and Financial Reporting Role of ethics

In financial reporting, ethics assumes a key role. Shareholders must feel confident enough to trust a company with their money. Financial reporting is the representation of all information about a company's historical, current and projected health. In most cases, shareholders and investors depend on the financial statements available to make educated and informed decisions. To support entities maintain financial reporting and adhere to business regulations, shareholders tend to trust the current firms designed to supervise various aspects of the accounting field. The basic organizations include the Financial Accounting Standards Board (FASB), Securities and Exchange Committee (SEC) and the Public Company Accounting Oversight Board (PCAOB). In collaboration, these bodies guarantee financial reporting is reliable, available and fair to all investors.

The usefulness of ethics in financial reporting and business is to promote investor and public confidence in businesses. In the absence of a powerful ethical code and adherence to the code, people will be uncertain of their investment's security. Professionals in the accounting field must have a strong moral and ethical reasoning as their decisions about financial reporting could have significant impacts on individuals, the corporation and...

In the business world, ethics is more than mere issues about accounting. The numerous recent scandals relating to accounting and reporting scams started at the CEO level and penetrated down the hierarchy into financial records.
Before the Sarbanes-Oxley Act, numerous financial breaches like WorldCom, Adelphia Communications, and Enron plagued the U.S. public, adversely affecting the nation's economic health. Mostly, these scams accrued from unethical accounting behaviors conducted at the top level of the corporations but executed in the financial reporting practices of public accounting organizations.

Enron and other scandals

To discuss ethics and financial reporting in a better way, we must look at some of the greatest scandals in a recent decade: the WorldCom and Enron. In the corporate world, Enron was a huge symbol of the widespread economic problem because its growth and collapse were unique. Formed in 19985, Enron was under the leadership of Ken Lay. In 1990, the company hired Andy Fastow and Jeffrey Skilling. In 2001, Enron was listed as one of Fortune's best admired firms, sending its stock prices up to at least $90 per share. Next was a $1 billion write-off that marked the onset of an SEC investigation. Soon, Enron was declared bankrupt, and the share price dropped to $26 per share. Enron was…

Continue Reading...
Sources used in this document:
To discuss ethics and financial reporting in a better way, we must look at some of the greatest scandals in a recent decade: the WorldCom and Enron. In the corporate world, Enron was a huge symbol of the widespread economic problem because its growth and collapse were unique. Formed in 19985, Enron was under the leadership of Ken Lay. In 1990, the company hired Andy Fastow and Jeffrey Skilling. In 2001, Enron was listed as one of Fortune's best admired firms, sending its stock prices up to at least $90 per share. Next was a $1 billion write-off that marked the onset of an SEC investigation. Soon, Enron was declared bankrupt, and the share price dropped to $26 per share. Enron was not alone so concerns could not dissipate quickly and confidence in capital markets plummeted. Before Enron, firms like Sunbeam and Waste Management acted as a warning of what happened to Enron. The closure of Enron led to constant disclosures. World.Com had been entangled in the practice of capitalizing expenses. On one hand, Enron was trying hard to outshine capital markets and accounting regulators while WorldCom was making accounting errors that even novice accounting learners would identify as inappropriate. For many, the most disturbing factor is the collaboration among top executives. Following these scandals, the then President Bush and Congress took a tough position in the version of the Sarbanes-Oxley Act

Causes of Financial Reporting Problems

A confluence of situations opened eyes to the issues. The bursting of the economic bubble significantly contributed to the realization of the abuses. When all things seemed bright, no one questioned the financial reports of corporations. The new economic could not last forever. Therefore, when the economy changed, investors started to pose tough questions. Companies could not answer many of these questions; there were only cover-ups and denials. The world of accounting is facing a challenging period. The reputation that it acquired over decades has been lost in a day. People thought that accountants were individuals of great integrity occupying interesting positions. In today's situation, their occupation has become even more interesting but at the expense of their reputation for integrity. The profession must fight to restore public trust and maintain their belief in the significance of accounting.
Cite this Document:
Copy Bibliography Citation

Related Documents

Essay
Cheating: A Cultural Construct Cheating
Words: 3828 Length: 12 Document Type: Thesis

This presented the troubling consideration that many of the current standard-bearers for physical excellence were the product of performance enhancing drug use. Moreover, this cast a dark shadow on what have been regarded as some of the game's greatest recent accomplishments, which had been achieved through cheating. In that vein, Canseco's claim was succeeded by an admission that seemed to justify this reproach. Mark McGwire, Canseco's former Oakland Athletic teammate,

Read More

Sign Up for Unlimited Study Help

Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.

Get Started Now