Professional Documents
Culture Documents
[Student Name]
[Course Title]
[Instructor]
[Date]
2
Business Ethics
Business or corporate ethics are a set of norms, rules and principles of what people
what actions are considered ethical and moral in a business environment. All businesses should
apply business ethics principles in the workplace not only to promote a healthy and professional
environment but also to improve and sustain a better image of the company in general public. A
company or business must consider several factors to ensure ethical practices are applied in all
aspects of the business. Ethics is referred to the phenomenon or action which people normally
consider right and moral and one which does not have any immoral or deceiving impacts on the
stakeholders of a company and social environment a company operates in (Ferrell, Fraedrich, &
Ferrell, 2000 pp. 2-25). If a business does not implement effective ethical practices it may face
various risks such as fines, image deterioration and loss of business. Some unethical issues are
also considered unlawful which may subsequently result in major losses for the company and
heavy penalties, fines and punishments being levied by regulatory bodies or government. The
people working in organizations also face several problems while fulfilling their job
requirements. In most cases people get confused about what decisions to make which are
acceptable and ethical to all entities and individuals affected by the decision. Several companies
have faced ethical issues in the context of doing business and most of these companies were
involved in unethical accounting and business practices and one of the biggest examples of
corporate scandals involving unethical issues was the case of Enron. In this case several key
employees of the company and external auditors of the company were involved in unethical
practices in business which eventually resulted in huge losses for shareholders and eventually the
3
government had to intervene where consequently Enron went bankrupt and Arthur Andersen
which was the largest accountancy firm was closed down. The regulators not only imposed huge
penalties and fines on both companies but severe legal action was also taken against the senior
executives of both companies. The license of Arthur Andersen was revoked and the company
could no longer provide accounting and auditing services. This implies the immense impact of
unethical procedures on a company and its employees. Therefore in order to steer clear form
such risks, organizations should implement an ethical code of conduct where all employees of
the organization are trained in the aspects of ethical practices in organizations. Even after the
implementation of an ethical code of conduct and guidelines, employees and personnel face
several ethical dilemmas during their tenure in the organization. These ethical dilemmas need to
be resolved using various ethical theories and recommendations should be made on making a
decision which is ethical and acceptable to all parties involved in an case. This paper presents
and describes an ethical dilemma in the workplace and various aspects of the dilemma with
reference to ethical principles involved in the case and the influences on the key decision maker
in the case. The last part of this paper provides recommendations to the key decision maker
regarding decisions to be made which are considered ethical by all parties of the case (Ferrell,
The case under consideration concerns the ethical issues confronting Mr. A who works
for the ABC accounting firm. During the audit of a subsidiary of an important client Mr. A
The value of the company has been reported as $2 million whereas according to calculations
done by Mr. A, the value of this property does not exceed $100,000. The reason given by the
4
client firm management on reporting the overstated value is that they intend to rent out the
property in near future. The client firm refuses to write down the value of the property and his
superior Mr. B disagrees with him and asks him to leave the problem and issue a clean report.
Mr. A does not comply with the instructions and submits a report pointing out the overstatement
of the balance sheet amount as the difference in the amount is substantial. The superior takes out
the pages submitted by Mr. A from the file, attaches a clean report and issues a negative
evaluation of Mr. A’s performance. Mr. A is now considering on the options available to him in
this matter. The report will cover an analysis of stakeholder impact and will explain the course of
The area of accounting manipulation is closely related with the field business ethics and
numbers of organizations are sued just because of unethical accounting practices and using
window dressing techniques. Accounting manipulations and accounting frauds are just playing
with the numbers and the accountants through this act can either harm their own organization or
in certain cases they affect the shareholders. The accountants and individuals that are related
with finance department are mainly associated with these types of frauds. These frauds are
deadly for an organization and it negatively affects an organization in both short and the long run
(Wells, 2007). The repute of the organization is tarnished by these frauds and organizations
suffer huge amount of losses because of these frauds and their customer base are reduced
because of this.
In the initial phases when an organization is a private limited company then the
accountants of this organization can harm them if proper check is not placed on them. They can
change the figures of receipts and in this manner they can harm an organization. Through
5
overstating the amount of account payable they can cheat an organization. This cheating can
cause problems for the organization and accountants cunningly can balance the financial
statement of an organization.
Another process used by organizations is on a broader scale where they are advised by
the directors and senior officials of the organization to change the figures of the financial
statements. In certain cases they are even pressurized by the shareholders to change the figures of
financial statements so the value of shares rises up. The organization use window dressing
techniques in this scenario. Window dressing techniques are used by accountants to present the
accounts of the company in a manner that enhances the financial position of an organization
(Jones, 2009).
flattering the figures of accounts. There are two aspects on which window dressing are solely
based on these two aspects are liquidity and profitability. In the liquidity aspect the organization
hides the diminishing liquidity position of the organization and the profitability massages the
profit figures of organizations. There are different methods that are used by organization is
window dressing their accounts. These methods are short term borrowing, chasing debtors,
including of the intangible assets, changing the stock valuation policy, sales and lease back and
The famous methods are stock valuation, inclusion of intangible assets, short term
borrowing and depreciation policy. In the stock valuation method the methods used are LIFO,
AVCO and FIFO (Biegelman & Bartow, 2006). A change in these methods would lead to
different figures that are the reason why accountants use this strategy. The change the figures can
affect the closing stock and impacts the profits of the company and the value of firm’s assets is
6
effected by stock in the balance sheet. Similarly, in the inclusion of intangible assets
organizations use non depreciated assets to maintain a strong value of its assets and it gives a
misleading view. Another window dressing approach is used through short term borrowing and
the short term borrowing is made just before the date on which the balance sheet is drawn. All of
these frauds are made just to enhance the performance of an organization but the process of
enhancing the performance is not viable because organizations are infringing the laws and they
are not complying with the ethics of business. The ethical code of conduct is not followed by
organizations and that is the reason why organization can be successful in the short term but in
the longer run these organizations suffer because they are not complying with the rules of
business.
Auditors are present in nearly every organization and the role of auditors is to ensure the
fact that organization’s financial position and financial reporting is appropriate. The element of
fraud auditing is also used by them which basically are defined as the fact which creates an
environment for the detection of frauds and prevention of frauds in transactions that are on
commercial basis (Singelton & Bologna, 2006). The main goal of these auditors is to ensure
corporate compliance and remove fraudulent activities in the organization. The modification of
numbers and destruction of certain records are some of the examples of basic frauds conducted
by accountants. Auditors check the entire accounts and related financial statement of an
organization and the first objectives of a fraud auditor are to identify the fact that whether a
certain level of discrepancy is present in the accounts or not. Then the auditor checks the element
of human error present in the accounts. Fraud auditors check the tone in the entire organization
7
and he/she ultimately devises a corporate code of conduct for the organizations financial policies.
As far as auditing is concerned there are basically two types of audits in an organization.
These two types are internal audit and external audit. The internal audit is basically conducted by
the organization itself and for external audits certain auditors are hired from auditing firms to
Besides changing the figures and deleting the accounting records another issue arises
which is related to disclosure requirement and certain organization don’t disclose their entire
financial statements and they hide them from their shareholders and present a better picture. For
fulfilling the disclosure requirements and to create corporate compliance a law was passed which
is known as SOX (U.S Congress, 2002). The main purpose of this act was to ensure the
disclosure requirements and organizations have to fulfill the requirements of this law. This act
was passed because corporate giants like Enron, WorldCom, and Tyco International were
involved in corporate scandals that were based on financial reporting. Although the act has
certain shortfalls like it is working as a label for corporate compliance and those organizations
that have adopted this act are free from corporate frauds and its posses high level of cost that is
the reason why small organization cannot afford this act. However, a detailed compliance and
In order to perform this analysis, the stakeholders in the case must be identified. There
are three stakeholders who would be directly affected by the outcome. First stake holder is the
accounting firm, the second stakeholder is the real estate subsidiary of an important client and
the third stake holders are the people responsible for audit. The impact of the audit report on all
8
three stakeholders is discussed one by one. First let us observe the impact of the amendments
made in the audit report by Mr. B, on the accounting firm. The outcome of this report on the
company would be very helpful in securing the client account for the company but on the other
hand there is a threat to the company as well because when the client company uses the audit
report issued by the company to sell or rent out the property to potential customers, they will be
mislead and sue the accounting firm for the losses incurred due to this report. The company will
face a lawsuit and its reputation will be tarnished as ABC is considered a strong advocate of
ethics and morality especially after strong measures have been taken in ethical and moral
standards of audit firms in the accounting standards as well as the constitution. If the original
report submitted by Mr. A was issued to the client the most drastic impact it would have is that
the accounting firm could lose the client but retain its image of a firm which gives value to
ethical and moral standards. Now the affects of this report on the second stakeholder which is the
subsidiary of the client company is discussed. If the clean report is issued the client company
would not have any problems regarding the proper disclosure of this amount as the overstated
amount is not substantial in respect of the company’s consolidated financial statements but the
amount is substantial in the financial statement of the subsidiary as it has a 7 percent impact on
the net income of the subsidiary. If the clean report is issued the task of selling or renting out the
property would be much easier for the subsidiary. The same legal problems would be faced by
the company in case of material losses to the buyers who would file for damages due to
misrepresentation. However, if the original report by Mr. A is issued, it would be difficult for the
management of the company to sell or rent out the property or even take out a loan by
mortgaging this property. There would be no significant positive impact on the client company
but it could avoid any future litigation from the potential buyers or tenants of the property. The
9
company could also avoid any future external audit anomalies if the values reported on the
financial statements are accurate and truthful. The third and the last stakeholder of the scenario is
Mr. A himself because if the clean report is submitted he will be the first person to face the
lawsuit as he was directly responsible for auditing the financial statements of the subsidiary. The
positive impact for him would that his one year promotion would be guaranteed if the client
account is secured solely by the accounting firm. The original audit report submitted by Mr. A
would have resulted in the accounting firm’s loss of the client account.
Organizational culture plays an important role in the decision making and different
strategic decisions are taken with respect to the prevalent culture of the organization. In the
similar manner it can be said that organizational culture is important in both the short and the
long run. The culture of the organization incorporates the norms and rules of the organization.
Furthermore, it can be said that when an organization is making ethical decision making then in
this scenario culture of that organization plays an important role. Researchers and strategist
actually believe that an organization culture can be considered as a proactive culture when it
incorporates all the elements of ethical decision making in both the short and the long run
(Ferrell, Fraedrich, & Ferrell, 2000 pp. 113-141). In the similar manner it can also be said that
when the decision making is free from the menaces of bribery, red tapping, harassment then an
organization can prosper in both the short and the long run. In the similar an organization that
does not focuses on the culture and just focus on the primary aspect of profit making might
Therefore, it can be clearly said that the influence of organizational culture is huge on the
organizations decision making. In the scenario of the case it can be said that Mr. A is facing a
10
dilemma regarding ethical considerations in ABC Company. The supervisor Mr. B has actually
changed his report and awarded the client “non-qualified”. However, the ethical analysis actually
depicts that this organization is a qualified company because it is not fulfilling the ethical code of
conduct and the client is focusing on the faulty accounting practices. That is reason why Mr. A is
quite confused about the situation and what strategy he should opt. Mr. B (supervisor) has
actually implemented this scenario because the ABC company can progress in this aspect when
they award a tag of non-qualified to the client. This situation depicts the organizational culture
and it shows that this organization is working on unethical practices because for the attainment
of profits they can opt for unethical business practices. The organizational culture actually
defines the norms of an organization and the norms that are present in ABC Company actually
depicts that they are reluctant to ethical implications and it can be easily predicted that since the
culture of this organization is not ethically enriched that is the reason why it can be easily
predicted that the directors of the company would go with Mr. B and they would opt for his
policies.
Thus, it can be said that organizational culture of ABC Company is not appropriate and
that is the reason why this culture is creating problems for Mr. A in both the short and the long
run. Furthermore, the dilemma in this scenario is that what should Mr. A opt for his personal
opinions about ethics or he should opt for the performance of the company which is due to
unethical practices.
The development and implementation of an ethics program is not only crucial for
organizational success but it also proves to be effective in various human resource issues. The
11
ethics and compliance to ethics program involves a variety of stages which are comprehensively
designed and developed by the company management. It is to be understood clearly that the
ethics and compliance program is not just a code of ethics or code of conduct but comprises of a
variety of elements. The elements in an ethics and compliance program are lucid organizational
values, ethical strategies and ethical goals for decision making purposes, ethical policies and
ethical programs, reward structures in ethical behaviors, guidelines for implementation of ethical
implementation of ethical policies and convergence of employee values and corporate values.
There are several benefits of implementing an ethics and compliance program in an organization
which include the loyalty of customers, reduced ethical meltdowns, increased employee loyalty
and productivity, improvement in sales, avoidance and reduction in penalties and fines, decrease
in opposition from various circles of the society, increased financial performance and decrease in
The ethics and compliance program of ABC organization would greatly impact the
decision made by Mr. A in regards to the current ethical dilemma. If the ethical and compliance
program is implemented effectively in ABC Company then Mr. A would have no difficulty in
arriving at a conclusion in the current case and could make a decision on whether to report the
ethical misconduct of Mr. B to proper management personnel. If there is in fact an ethical and
compliance program implemented in the company Mr. A would not even have to worry about the
incident happening in the fist place as a strong ethical program would discourage any unethical
behavior by personnel whether old or new. If the management applies an effective ethics and
compliance programs all employees would be properly trained in dealing with ethical issues and
12
making proper decisions in ethical dilemmas such as the current situation. In the absence of such
a program employees would be motivated to indulge into unethical behavior without any check
and balances for their personal benefits. Mr. A issued a qualified report for the client who had
overstated the value of one of its assets on the balance sheet but Mr. A’s supervisor replaced the
previous report with a non qualified report and made negative comments on the report which
were quite damaging for Mr. A’s career. As a proper ethics and compliance program has not
been implemented in the organization Mr. A is confused about the situation and what to do in
this regard. He must now make a decision based on his own interpretation of ethical misconduct
and moral actions. If a comprehensive ethics and compliance program was implemented in the
organization then Mr. A would not face any difficulties in making a decision instantly regarding
the current situation and in an ethical program a proper channel would have been available to
Rewards play a very important role in a person’s decisions in the workplace. There are
two types of rewards for employees in an organization which are intrinsic rewards and extrinsic
rewards. Extrinsic rewards are money oriented whereas intrinsic rewards are esteem oriented.
The extrinsic rewards include benefits such as salary increments, bonuses and special cash
rewards on achievement. The intrinsic rewards are more esteem oriented and focus on a person’s
esteem needs rather than cash rewards. These rewards include promotions, acknowledgement in
company are highly motivated with both of these rewards in different situations. The discipline
in an organizational environment entails that all employees and personnel adhere to the rules,
13
policies and procedures implemented in the organization. Several companies have discipline
policies which impose penalties on employees who do not concur with or follow the policies.
Employees usually make decisions which provide them with rewards and provide safety form
disciplinary action. Following the ethical code of conduct may also bring intrinsic rewards and
save employees from penalties and punishments. Alternatively when an ethical code of conduct
is not effectively implemented in an organization, employees may make decisions which are
unethical or immoral for gaining extrinsic or intrinsic rewards without fear of any penalties being
In the current situation A’s supervisor has replaced the original qualified report with a un
qualified report for the benefit of the client which could result in confirmation of the client’s
account to the company and both A and his supervisor could get rewards after the confirmation
of the account. Mr. A would also get promoted to a higher level in the organization if the client
signs a contract for future services. As ABC Company is more profit oriented and although an
ethical code of conduct is present in the company but it is not implemented quite effectively. The
present scenario would motivate any person in place of Mr. A but he has quite strong personal
ethical values which create a dilemma for him and he is now confused whether to ignore the
actions of his superior and let the unqualified audit report pass on to the superiors or report the
situation to the superiors. If A ignores the matter it may result in rewards for A in the form of a
promotion and if he reports the matter to superiors it may result in failure of acquiring the
client’s account which may prove quite beneficial for the company in monetary terms in future
periods of operation. Thus the rewards and discipline culture of an organization impacts the
Course of Action
The audit report now in the records of ABC does not have A’s name as the report
submitted by him was removed by Mr. B and a negative evaluation of his performance and
instead of getting the important one year promotion he faces the threat of being removed of his
position from the accounting firm. The options available to A include leaving the matter as it is
and not reporting it to anyone; he has the right to take this matter to his partner counselor or
personnel department. He personally feels that he should report this matter to an independent
A is a person who strongly believes in the ethical and moral duties of an auditor and
strictly abides by them. He had discussed the report released by Senator Lee Metcalf which
covered the biasness of accounting firms towards their clients with various partners of the firm
and got the impression that the partners strictly believed in the ethical and moral representation
of clients. It should also be noted that it has become more important for auditors to follow the
code of ethics especially after the implementation of the Sarbanes-Oxley Act which requires the
auditors to strictly follow the code of ethics under section 103 (U.S Congress, 2002). This was
the reason ABC had its reputation of setting high standards of ethics during the auditing process
of different companies. This indicates that if A discusses the matter with one of the partners,
In order to provide a course of action we must compare the benefits and shortcomings of
the options available to A. If A selects the first option and does not report the incident to anyone
15
there would be no benefit to him but the company may benefit in case the client account is
acquired exclusively. The first option holds many disadvantages for A as the audit report now
includes a negative evaluation of A’s performance and he is responsible for the reliability of the
report. In case of any litigation he would be solely responsible for the consequences and both the
negative evaluation and legal issue could jeopardize his position at the firm. The second option
entails that Mr. A reports this situation to a partner, the benefit of this plan would be that the
original audit report is issued and action is taken to ensure that code of ethics is strictly followed
in future. The disadvantage of this option could cause the client company to cancel its account
with the firm. If A is pushed hard to amend the report or do nothing about it he can go to the
Public Company Accounting Oversight Board which was established with the enactment of the
Sarbanes Oxley Act. Provisions have been made in the act to protect whistleblowers and it has
been clarified any retribution towards whistleblowers will not be accepted (Kleckner & Jackson,
2004).
Conclusion
From the analysis of the whole case and the ethical issues involved the viable option is
that Mr. A report this matter to a partner counselor as this option is more beneficial for his career
and the profession of auditing also demands that code of ethics be followed and financial
inclined towards the code of ethics and morality as he thoroughly studied the code of AICPA for
his CPA exam. If the last option does not work he can eventually go to the Public Company
Reference List
Biegelman, M., & Bartow, T. (2006). Executive Roadmap to Fraud Prevention and Internal
Ferrell, O., Fraedrich, J., & Ferrell, L. (2000). Business Ethics. Houghton Mifflin Company .
Jones, M. (2009). Creative Accounting, Fraud and International Accounting Scandals. John
Kleckner, P., & Jackson, C. (2004, June). Sarbanes-Oxley and Whistle-blower Protections.
http://www.nysscpa.org/cpajournal/2004/604/perspectives/p14.htm
Sarbanes Oxley. (2006). Sarbanes-Oxley Compliance. Retrieved December 11, 2009, from
Soxlaw.com: http://www.soxlaw.com/
Singelton, T., & Bologna, J. (2006). Fraud Auditing and Forensic Accounting. Wiley.
U.S Congress. (2002). Sarbanes Oxley Act 2002. Washington: U.S Congress.