Tyco Executive Bleach of Accounting Ethics Name Institution Tyco Executive Bleach of Accounting Ethics 1. Given the corporate ethical breaches in recent times, assess whether or not you believe that the current business and regulatory environment is more conducive to ethical behavior…
Accounting ethics, which are set by the International Accounting Standards Board (IASB), and the Securities and Exchange Commission (Audi, 2009). The ethics are contained in the accounting principles that dictate the way businesses should account for their sales, profits, and costs. The principles are known as the International Financial Reporting standards, and these govern mainly public organizations, which are required to publish their annual statements. In the last decade, there has risen cases of bleach of accounting ethics, and this raised questions among investors concerning the effectiveness of the business environment (Kushniroff, 2011). The cases involved organizations such as Enron, Tyco, WorldCom, and Yahoo among others. The rise of these cases triggered the implementation of several regulations in the accounting sector, which include the requirement for accountability and the involvement of the community in dealing with cases that concern bleach of ethics. The accounting environment requires state corporations to reveal their annual statements to the public through the media. The accounting boards require companies also to employ internal and external auditors to verify the annual statements. Business stakeholders such as investors and shareholders are now more aware of business ethics than they were in the last decade. This indicates that the business environment and regulations are conducive for ethical behavior (Kushniroff, 2011). Those who break the rules are individuals who are mainly interested in making personal gains rather than companies. 2. Based on your research, describe the organization, the accounting ethical breach and the impact to the organization related to ethical breach. Tyco is a company that offers fire fighting and prevention equipments to industries such as banking, transportation, health care, and marine in over fifty countries in the globe. Kozlowski, the chief Executive of the Company in 2002, bleached the accounting principles of the firm by assigning himself illegal bonuses worth six hundred million dollars. The executive also used the company’s finances personally by purchasing expensive jewels and organizing private parties (SEC, 2002). The company suffered the loss of finances that were used by the executive to satisfy his personal needs. Tyco also wasted finances when following up the case against the executive; this money would have been used more efficiently had the case not arisen. The organization also lay off numerous workers. These consequences led to the decline in the company’s sales and profits that consequently reduced price of the firm’s stock (Kushniroff, 2011). 3. Determine how the organizational ethical issue was detected and how management failed to create an ethical environment. The case against the CEO of Tyco company was brought to light by Robert Morgenthau, a Manhattan District Attorney in 2002 (SEC, 2002). The attorney discovered the fraud while he was investigating cases of tax evasion against Kozolowski. The investigation of tax evasion had been ordered by the Securities and Exchange Commission, which had discovered that Tyco was settling personal taxes for Kozolowski. Robert disclosed the fraudulent statements that he discovered in the company’s books to the SEC, which then launched further investigations. The management of the company had failed to cover personal expenses with their salaries. The investigation ...
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The following outstood as the causes of financial fraud, the need to make an extra income, ease in capital acquisition, concealing unpleasing news from the relevant stakeholders of the organization, cover-up of illegal financial activities and the attempt to make the company’s position unknown to the public.
During this period, a relatively small number of accounting firms could perform audits for a relatively large number of entities. Professional accountants and auditors could render reports on the financial performance of different entities and could work for different investor groups.
Hayes, R., et al (2005) argued that a self-interest threat occurs when a member firm or member of the assurance team could benefit from a financial interest or other self-interest conflict with an assurance to client. Examples of circumstances that may create this threat include but are not limited to: a direct financial interest or material indirect financial interest in an assurance client; a loan or guarantee to or from an assurance client or any of its directors or officers; undue dependence on total fees from an assurance client; concern about the possibility of losing the engagement; having a close business relationship with an assurance client; potential employment with an assurance c
The Statement of Auditing standard no. 2 states that there should be independence in mental attitude at all times is required. The factors include threat or intimidation, auditor's self -interest in getting an unqualified or other type of opinion. The auditor's job is to express his unbiased opinion on the fairness of the audit client's financial statements.
For their long term viability it is imperative that businesses carry out their activities in an ethical manner which is acceptable to the society. Whether ethics is derived from religion, traditions or culture there are always some universally acceptable and desired ethical practices.
The accounting reports are supposed to present a true and fair view of the state of the affairs of a business in terms of profitability and financial status. The basic intention of financial statements is to portray the financial information before various stakeholders for their decision making.
Corporate scandals such as the collapse of Enron invariably turn the attention of the public to the ethical stance of accountants and the ethical values of financial analysts and evaluators as also their claim to professionalism. Professionalism is clearly associated with ethical integrity and this is especially true on the case of financial reporting and accounting.
The factors include intimidation, self -interest and the like. The auditors opinion gives credence to the financial statements. The following paragraphs explain that independent auditors are the rule and not the exception (Snyder 2002).
In question 1 the different threats of independence as it is one of the most crucial characteristics of auditor. In question 2b, the ethical dilemma of the employee of a firm has been analysed with different point of view. In question 3 the liability of an auditor
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