Business Ethics
Business Ethics
Doug Donofrio
FIN/486
May 27, 2013
Mary Corcutt
Eron and WorldCom are both companies that collapsed due to ethical violations. The major factors that lead to the dissolution of Enron Corporations and WorldCom will be indentified. The specific ethical violations in accounting practices at these two companies will be explained and the role of business ethics in strategic financial planning will be described. “Business Ethics are the standards of conduct or moral judgment that apply to persons engaged in commerce” (Gitman 2009). Business Ethics plays an important role in the finances of a company. Strong ethics are believed to increase a company’s value. In order to plan financially, it is important that the financial information given is accurate. Many companies have tried to make their financial numbers look better by not following sound business ethics. On paper these companies have been successful for a while but in the long run they have not been successful at all because of their business ethics. Eron and WorldCom are two examples of companies that have violated business ethics and provided inaccurate financial information. Both companies have collapsed because of these poor business ethical decisions. Enron was one of the major electricity companies in the world, but after the financial scandal in 2001 and 2002 the company collapsed. Eron had reported inaccurate financial information and questionable accounting practices. The scandal generated the creation of the Sarbanes-Oxley Act. The Enron scandal led to the company filing bankruptcy in 2001 (Seeger 2003). Eron had very complex financial statements that were confusing to shareholders. Their accounting practices lead to misrepresentation of earnings and balance sheets that indicated good performance.
WorldCom was a leader in telecommunications. In June 2002, an internal audit found $3.8 billion in fraud (Doward 2002). The accounting department was underreporting costs and
Doug Donofrio
FIN/486
May 27, 2013
Mary Corcutt
Eron and WorldCom are both companies that collapsed due to ethical violations. The major factors that lead to the dissolution of Enron Corporations and WorldCom will be indentified. The specific ethical violations in accounting practices at these two companies will be explained and the role of business ethics in strategic financial planning will be described. “Business Ethics are the standards of conduct or moral judgment that apply to persons engaged in commerce” (Gitman 2009). Business Ethics plays an important role in the finances of a company. Strong ethics are believed to increase a company’s value. In order to plan financially, it is important that the financial information given is accurate. Many companies have tried to make their financial numbers look better by not following sound business ethics. On paper these companies have been successful for a while but in the long run they have not been successful at all because of their business ethics. Eron and WorldCom are two examples of companies that have violated business ethics and provided inaccurate financial information. Both companies have collapsed because of these poor business ethical decisions. Enron was one of the major electricity companies in the world, but after the financial scandal in 2001 and 2002 the company collapsed. Eron had reported inaccurate financial information and questionable accounting practices. The scandal generated the creation of the Sarbanes-Oxley Act. The Enron scandal led to the company filing bankruptcy in 2001 (Seeger 2003). Eron had very complex financial statements that were confusing to shareholders. Their accounting practices lead to misrepresentation of earnings and balance sheets that indicated good performance.
WorldCom was a leader in telecommunications. In June 2002, an internal audit found $3.8 billion in fraud (Doward 2002). The accounting department was underreporting costs and
References: Doward, J. (2002, Jun 30). Business & Media: Black Holes: Day the WorldCom world was turned upside down: The giant’s fall: Last Monday, America’s second largest telecoms firm, and once the toast of wall street, owened up to the biggest accounting fraud in history. Jamie doward looks at the hardball tactics that had a fatal soft centre and charts a cataclysmic fall from grace. The Observer. Retrieved from http://search.proquest.com/docview/250545064?accountid=3512. Gitman, L.J., (2009). Principlals of managerial finance (12th ed.). Upper Saddle River, NJ: Prentice Hall. Goodman, P.S., and Merle R., The Washington Post [Washington, D.C.] 30 June 2002: A.01. Ross, S.A., Westerfield, R.W., & Jordan, B.D., (2008). Fundamentals of corporate finance (8th ed.). New York, NY: McGraw-Hill Irwin. Seeger, M.W., Ulmer, R.R., Management Communication Quarterly: McQ 17.1 (Aug 2003): 58.