Ethics in Accounting Essays - Economy, Business, Accounting Scandals

Ethics in Accounting Assessing the Role of Ethics in, and the Impact of Recent Issues on, the Practice of Accounting : An Analysis of Unethical and Illegal Practices Leading to the Downfall of Corporations and Companies By: October 12, 2016 BAF3M Unit 19 & 20 (Accounting Careers and Ethics) Mrs. Hruska Ethics in Accounting An Analysis of Unethical and Illegal Practices Leading to the Downfall of Corporations and Companies The two main jobs of an accountant are to classify and record financial information and to provide useful financial information to assist in decision-making. This information is used by people around the world to make decisions that affect both the company the accountant works for and the person that makes the decisions in the first place. Through the accounting system, it is possible for an accountant or company to purposely change or fake information which could lead to a profit for the company. This practice is both illegal and unethical. In the past 20 years, numerous corporations and companies have been caught by auditors, almost always leading to the bankruptcy of said corporation/company. I will analyze the actions of ENRON, Adelphia Communications, and WorldCom that, in the end, caused significant losses or bankruptcy. Finally, I will discuss possible solutions for these problems, small steps businesses can take to avoid repeating the mistakes of the past. Enron was an American energy company founded in 1985. It was one of the biggest energy companies ever, claiming to have over 100 billion dollars of revenue. In 2001 it filed for bankruptcy. What went wrong? Well it turns out that Enron was actually hiding billions of dollars in debt in off-the-balance-sheet accounts, accounts that don't need to be shown on the balance sheet. The executives at Enron \"cooked the books\", using loopholes in accounting and poor financial records which eventually lead to the public noticing. In 5 months Enron's stock fell from $90 to $1 and soon after Enron was bankrupt. This caused thousands of people their jobs. The government learned from this and new laws were put in place to make a second Enron scandal more difficult. Adelphia Communications was a cable television company in Pennsylvania. Founded by John Rigas in 1952, it quickly became the fifth largest cable company in all of the United States. Overtime Rigas ' family started other businesses such as the Family-Owned farm, an interior design shop, and a private car dealership. In 2002, John Rigas was sentenced to 15 years in jail at the age of 78 for multiple accounts of fraud including violation of the RICO act, waste of corporate assets, breach of contract, conversion of corporate assets, among others. Soon after, Adelphia went bankrupt. Rigas transferred 2.3 billion dollars in funds from the company to himself. These were made through journal entries that gave Adelphia more debt and the Rigases millions of dollars of cash or other assets at no cost at all. By manipulating the books to meet expectations of auditors, analysts and investors he was also able to inflate the stock price or the company. Revenues from Adelphia were taken from the company and used for the family's personal expenses. Rigas also used the previously mentioned other companies to make fake transactions to his smaller companies that would then go directly to his personal account. For example, Rigas used his car dealership to \"lease\" vehicles to Adelphia at an inflated price; m ost of the time Adelphia wouldn't even receive the vehicles. On a balance sheet or income statement , the transaction would look fine , perfectly legal and ethical. However, this transaction was just a method to transfer money from the company to the Rigas family and avoid detection from auditors. Even after all this, Rigas still wanted more money so he would journalize transactions with fake companies . Thereby keeping the accounts in balance ; t aking the money going to the fake companies for himself. During the 1980's, when the telecommunications industry was rising, WorldCom was founded and the corporation steadily increased in size, mainly because of the demand. However, in 2000, WorldCom (and its stock) suffered great losses when its proposed merger with Sprint was denied. To stop further losses CEO Bernard Ebbers decided to \"enhance