Asked by David Hornbek Jr. on Jun 07, 2024
Verified
Companies like Enron, WorldCom, and Tyco International, Ltd. have been caught in the midst of ethical lapses that led to fines, firings, and criminal and/or civil prosecution. List and briefly describe three factors that are responsible for what went wrong in these companies.
Ethical Lapses
Instances where individuals or organizations fail to act in accordance with their moral or ethical standards.
Civil Prosecution
A legal process initiated by a private party, rather than the state, to seek remedy for a wrong that is believed to have been done to them.
Enron
Enron was a U.S.-based energy company that collapsed after an accounting fraud scandal, becoming a symbol of corporate fraud and corruption.
- Analyze the ethical considerations in corporate accounting practices.
Verified Answer
ZK
Zybrea KnightJun 07, 2024
Final Answer :
The three factors are:
(1) individual character,
(2) firm culture, and
(3) lack of laws and enforcement. Honesty, integrity, and fairness in the face of pressure to hide the truth are important characteristics of an ethical businessperson. The behavior and attitude of senior management set the firm's culture. In firms like Enron, senior managers created a culture of greed and indifference to the truth. That culture flowed down to lower-level managers, who took shortcuts and lied to cover financial frauds. The lack of laws and enforcement has been blamed as a contributing factor to financial reporting abuses. As a result, new laws such as the Sarbanes-Oxley Act
(SOX) established a new oversight body for the accounting profession, known as the Public Company Accounting Oversight Board
(PCAOB), and established standards to enhance corporate accountability, financial disclosures, and independence.
(1) individual character,
(2) firm culture, and
(3) lack of laws and enforcement. Honesty, integrity, and fairness in the face of pressure to hide the truth are important characteristics of an ethical businessperson. The behavior and attitude of senior management set the firm's culture. In firms like Enron, senior managers created a culture of greed and indifference to the truth. That culture flowed down to lower-level managers, who took shortcuts and lied to cover financial frauds. The lack of laws and enforcement has been blamed as a contributing factor to financial reporting abuses. As a result, new laws such as the Sarbanes-Oxley Act
(SOX) established a new oversight body for the accounting profession, known as the Public Company Accounting Oversight Board
(PCAOB), and established standards to enhance corporate accountability, financial disclosures, and independence.
Learning Objectives
- Analyze the ethical considerations in corporate accounting practices.