This paper examines accounting ethics failures within a fictional corporation, CBA Corp., where fraudulent financial reporting, stock inflation, and the suppression of employee disclosure created systemic misconduct. Drawing on contingency theory and the principle of full disclosure, the paper analyzes the motivations and ethical shortcomings of two employees, an external examiner, and the company itself. Each party is shown to have acted primarily in self-interest rather than in the interest of stakeholders. The paper concludes with a series of practical recommendations—including internal auditing, confidential reporting systems, ethical training, and reward-based cultures—designed to prevent future misconduct and restore integrity to corporate accounting practice.
According to Smith & Smith (2003), ethics in business is vitally important on a number of levels, and particularly in terms of accounting. Accounting ethics means that a code of professional conduct is followed in order to encourage public confidence in accounting firms. This is also important for investors, who rely on full and accurate disclosure to make sound investment decisions and create a reliable source of investment income.
In the case of CBA Corp., generally accepted accounting ethics such as full disclosure are not adhered to. Although self-interest plays an important role in the actions of all role players, each party has transgressed in terms of their relationship with and responsibility toward stakeholders in the company.
Employee 1 observed the essentially unethical actions of the company during the five years of his employment at CBA. Although he understood that these actions were unethical, he nonetheless did not act in the interest of stakeholders, but rather in his own self-interest. His position dictated that he maintain his silence rather than disclosing the company's unethical conduct. In this way, he was able to preserve the relationships he had cultivated with his employers and fellow accountants.
The same self-interest ultimately encouraged Employee 1 to disclose the situation during the formal investigation into the company. He showed little consistency in his personal ethics, following only what each situation demanded. This behavior indicates that Employee 1 adhered to a contingency theory of ethics — doing whatever the situation required in order to preserve his own self-interest. Initially, he acted in the interest of the company because it was also in his personal interest. He was unable to disclose the ethical misconduct, as there was no system of confidential reporting available. Disclosure would have meant ostracism at best, or termination at worst.
Once the investigation began, Employee 1's self-interest dictated that he cooperate and implicate others involved in the fraudulent activity. Rather than reflecting genuine personal ethics, this cooperation was also driven by self-interest: failing to cooperate would have risked a prison sentence or other prosecution, damaging his professional reputation and future employment prospects. Employee 1 therefore acted consistently in his own self-interest, adapting to the demands of each changing situation.
Employee 2 also acted in his own self-interest according to the demands of the situation, although he appeared to do so with fewer misgivings than Employee 1. While Employee 1 responded primarily to situational pressures, Employee 2's motivation seems rooted in loyalty to his employer. He indicated that he merely acted in accordance with the prevailing culture within the company, and he did not appear to possess a particularly strong set of personal ethics — a deficiency also evident in Employee 1.
Employee 2 took longer than Employee 1 to cooperate with the investigation, doing so only once it became clear that he was personally implicated. This suggests a weak sense of personal ethics and a tendency to act according to the company's general culture and norms — or, more accurately, the absence of such norms.
Employee 2's application for a new job further indicated that his loyalty to the company was not deeply held, lasting only as long as the company's probable reputation remained intact. Like Employee 1, he acted according to the demands of the situation, but from an even weaker foundation of personal ethics.
That said, the examiner was not correct to warn the prospective new employer of Employee 2's conduct at his existing place of employment. Employee 2 acted out of company loyalty and would likely repeat such behavior only if a new employer demanded it.
"Evaluates examiner's conduct and overreach in the investigation"
"Assesses company's fraudulent practices and harm to stakeholders"
"Proposes reforms including audits, reporting systems, and training"
All parties in the case were guilty of misconduct in some form. Employee 1 did not display a sufficient sense of personal principles to report the company's misconduct. Employee 2 was loyal to the company only as far as it served his own purposes, and demonstrated no compunction about participating in fraud while employed there. The examiner exceeded the boundaries of his role by interfering with Employee 2's efforts to find new employment. CBA Corp itself was guilty of misconduct toward both its employees and its investors — encouraging fraudulent practices and rewarding dishonesty on one hand, and deliberately deceiving the public on the other.
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