In financial statements depicts true financial strength

today’s world, ethics became a significant part of the environment. Ethics
refers to the morale, values and rules which tells what is the right thing to
do. Business also includes ethics which governs the operation of businesses and
how to take decisions as well as how to treat people. Ethics in company can be
described as behaviour, ethical principles or worth that requested in the globe
of commerce. The acceptability of company ethics can be ambitious by client and
competitors. Business ethics are implemented so as to become belief amid client
alongside the company organization.  It
is extremely vital in requesting ethics in company because the company can be
successful after become the belief from the clients, vendors, suppliers and
stockholders. A positive ethical atmosphere also improves the morale among
workers which leads to increase in efficiency and effectiveness which result in
achieving of organisational goals. In this essay I am going to talk about the
importance of business ethics in corporate reporting and ethical issues that
lead to corporate collapses. (E. Merrick Dodd, 1932)


of Business Ethics in Corporate Reporting

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Reporting refers to the disclosure of the financial information of the company
stating its true financial position. Corporate Reporting is one of the most
important functions of the organisation and it also requires a higher code of
ethical behaviour. It helps the shareholders in the decision of buying and
selling of financial instruments of a company and makes other financial
decisions. (Ms  Meera 
Eeswaran, 2016)

corporate reporting includes various accounting principles that guides the
operations of the organisation as well as ensures that the information provided
in the financial statements depicts true financial strength of an organisation.
Some of the accounting principles are as follows: Fair presentation ensures that financial statements are complete
and error free. It helps the users to make decisions by using the information
and helps reaching their goals. Going
concern is the assumption that an entity will remain in business for
foreseeable future. Accrual basis states
that the business transaction will be recorded only when they occur. Full disclosure ensures that all
information which is provided to investors will not be misleading and is up to
date.  (Kamran, 2012)

these principles seem simple and easy to understand but their application
involves complex issues, judgment and decisions especially in case of complex
transactions. The existence of complexities and use of judgment provides
opportunity to adopt different bases of measurement and recognition of items in
financial statements that may create some financial reporting issues. (Kamran, 2012)



 Ethical reporting issues in major corporate
collapses and scandals


reporting issues themselves are not the reasons behind fraudulent or misstated
financial statements. The main reason behind such practices is ethics failures
that represent breaches of fiduciary duties by individuals who accepted
responsibilities but do not fulfil them. Some of the cases of corporate
collapses and scandals are as follows: (O. Kavrar and B. Y?lmaz, 2017)



– 1


one of the most famous companies in the world, it was an American energy
company based in, Texas. The Enron scandal was revealed in October 2001, in
which the executives’ staff used special purpose entities, Accounting loopholes
and poor financial reporting to hide billions of dollars in debt from failed
deals and projects. There was a downfall in the reputation of Arthur Andersen
because he found guilty in destroying documents illegally which further going
to be used for SEC investigation. The main reason behind company got bankrupt
was truthfulness, the lack of truthfulness by management about the company and
the duties that was owed like full disclosure and good faith acted against the
company. (Yuhao Li, 2010)


– 2


TYCO international
was globally diversified company that provides vital products and services to
customers in four segments: electronics, healthcare, fire and security and
engineered products. The Tyco corporate scandal of 2002 focuses on the problem
of unethical business practise, its CEO Kozlowski was involved in financial
transaction that were not included in the financial report of the company. He
was also illegally involved with other Tyco officers and lower ranking
employees to cover up for Kozlowski illegal financial transaction. Kozlowski
found guilty as he stole millions of dollars from Tyco. (Andrew Ross Sorkin, 2002)



Case – 3

World Com was one of the largest long distance
telecommunication companies. In 2001 it was announced that the company
overstated earnings by more than $3.8 Billion, this announcement stunned
financial analyst and also had effect on the financial market. On June 26 the company
was charged with massive accounting fraud by Securities and Exchange Commission
(SEC) and was also charged against destroying financial records of the company.
It was the second biggest U.S scandal and its former CEO and founder of the
company Bernard Ebbers was sentenced to 25 years in prison in 2005. The main
reason behind this scandal was that the company executives and employees tried
to hide the true financial position of the company by destroying its financial
reports. (Bob Lyke, Mark
Jickling, 2002)


Case – 4

HIH Insurance was
Australian company which was collapsed on 15th march, 2001 and was
Australia largest failure in business history. The company was in the debts of
A$ 5.7 billion and the reason is that the companies director, employees, auditor
and advisors was involved in unethical practises and the other reasons was poor
risk management and corporate governance, incorrect accounting for financial
reinsurance contracts and poor cash management. (Ali M. Yaftian, Damien Cross, 2005)




Case – 5

photocopying and printing company in America and leaded to the scandal by
overstating its revenue during the past five years by almost $2 billion. The
company misled the investors by manipulating the financial reports. The company
already settled SEC charges by paying a $10 million fine. The main reason that
resulted in the company downfall was failures to write off their mounting bad
debts and improper classification of transactions. (Amy Butala, Zafar Khan, 2008)





After studying all the
articles and journal described above, I can definitely say that business ethics
plays a very important role in the proper functioning of the organisation as if
there is a consistency in ethical behaviour this will definitely lead to
positive public image. Moreover, it’s Accounting principles helps in the
corporate financial reporting of the company and reveals its true financial
position. In the above corporate collapse cases most of the failures and
bankruptcy happens because of not following the ethics, lack of self-discipline
in the individuals and because of the individuals who have the incentive and
opportunity to breach the ethics. Therefore, there is an immediate need to
prevent these failures as one need to change their mind-set regarding business
ethics, the companies should follow the accounting principles so that the
investors and public can put their trust in them and this will definitely help
the organization in increasing of their goodwill and profits.


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