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Susan Kuang
ACC 372H - Needles
Bonus Ethics Paper
misrepresentation of the companys financial position. He maintained that it was largely his
confidence in and respect for the intelligence of the CFO, Scott Sullivan, who was telling him to
alter these statements that caused him to do so. Upon being caught in his actions, he was
extremely cooperative with authorities and the government as a result of his reflection on the
issue and the guilt resulting from the wrong he imparted on a large number or people. In regards
to the ethical decision he was forced to make, Myers told the judge At the time I consider to be
the single most critical character-defining moment of my life, I failed. As I teach my children
what is right and what is wrong, Ive got to acknowledge that I did something that was not just
wrong, but horribly wrong. (Cosgrove-Mather, 2005)
Its not often obvious at the outset of the issue what should be done, but it has become
increasingly easier for the young professional to make these decisions because of the examples
of extensive corporate fraud in our society setting precedents on which to base our decisions.
Enron and Arthur Andersen is a prominent example of corporate fraud that is widely studied
today as a basis for ethical decision making. Through serious collusive efforts between multiple
executives and higher up decision makers at Enron, they engaged in a number of questionable
accounting methods such as non-disclosure of off-balance sheet financing, mark-to-market
accounting, and overvaluation of assets among others. Andersen although aware of these issues,
compromised their ethics in order to meet the demands of Enron because of motives such as
payment and client retention among others. This fraud led to the dissolution and collapse of both
Enron and Arthur Andersen as well as the loss of pensions, life savings, and faith in the
accounting profession among many other things. (Robert G. Haldeman, 2006)
When considering personal fallout from revealing potential fraud, in cases such as Enron
and Arthur Andersen, it is extremely important to realize the impacts on the organization and
external users of financial information represented. Whether the young professional is personally
involved in the situation or not, if something is seen or noticed as questionable it should be
reported as it could result in significant penalty for the organization leading to its dissolution if
discovered after this fraud has been allowed to happen extensively. This could result in the loss
of job stability regardless and serious legal implications for the individual who chooses to
withhold information of which they were aware.
In reality, it is sometimes difficult to determine if fraud is truly occurring because of
flexibility within the profession to choose particular accounting methods for certain situations.
This increases the degree of and potential for creative accounting which may unfairly represent a
companys financial position. This is a result of accountants using their knowledge of accounting
in areas where there is no specific or clear guidance to manipulate figures reported in accounts to
be more favorable. An historical example is the case of Merck, the worlds third largest
pharmaceutical company, in 2002. It made a false revenue representation of $12.4 billion dollars,
which represented 10% of its operating revenue from 1998-2001. This was a result of Medco, a
subsidiary of the company, recording a medicine fund of its patients as revenue although it was
clearly unrelated to sales revenue. (Martinez, 2002) This distortion of financial position not only
results in the economic loss of users, but is devastating to individuals who invest their life
savings and livelihoods into this companies with blind faith in the accounting profession hoping
for favorable returns. In cases where it is less than clear whether certain practices are appropriate
it is advisable to seek legal counsel or professional consultation on the issue prior to coming
forward to prevent unjustified accusations from being made.
Even as a young professional, the pledge to serve the public interest has to continually be
reaffirmed if we are aware of or engaged in questionable activity. The impacts could be wide-
Susan Kuang
ACC 372H - Needles
Bonus Ethics Paper
reaching and fairly severe for numerous parties outside ourselves who are dependent on
accountants integrity as people. It may be easier while still grasping to define a sense of place
within a company or the profession, to reveal these scandals than it is for those who are more
involved with the company because it is likely that no strong allegiances have yet formed. At
these character-defining moments where a young professional may be the one most capable of
integrity in such environments, it is important to be represented as a person of integrity and
consideration as that is something carried throughout the remainder of ones professional career.
It is luckily becoming increasingly easier for the young professional to reveal potential
fraud, attributable to whistleblowing legislation drafted as a result of all the financial scandals
that occurred at the turn of the century. Sarbanes-Oxley protects employees, former employees,
or subcontractors who engage in protected activity such as bringing up claims of possible
violations of federal law against adverse employment action such as harassment or termination.
In the case where adverse action is taking against the reporting employee they are able to take
legal action which would provide for reinstatement, back end compensation for benefits and
front end compensation for pay going forward as well as compensatory damages for any
emotional suffering. (Marshall & Williams, 2007)
In efforts to encourage more people to come forward about questionable practices, the
SEC initiated a program in the summer of 2012 which allows whistleblowers who report
allegations of improper conduct to internal compliance officers or the government to apply for
awards provided that the information is received and results in a successful investigation by the
government for fraud. The awards could range between 10 and 30 percent of the penalties and
sanctions collected by U.S. regulators as a result of the investigation. (Longstreth, 2012)
As an accountant with limited experience within the profession, it is important first and
foremost to remember the underlying foundation on which the profession exists. Without the
principles of honesty and integrity there would be no weight given to the representations made
by the profession, eroding the purpose of its existence. In the face of character-defining ethical
dilemmas it is extremely important to reflect on the importance of the personal codes of conduct
and ethics asserted in other areas of life, because it is definitive not only of personal character but
of the sincerity and dedication with which the individual approaches and views the profession. A
large number of people rely on the profession and give it faith in judgment which should not be
taken lightly as it could have wide reaching implications and unfairly impact their livelihoods
and existences.
Whether one is personally engaged in the fraudulent activity as a result of superiors or is
an outside observer who is aware of irregularities in accounting it is important to maintain ones
own morals. In order to support ethical decision making in difficult situations, one can refer to
the number of scandals that have plagued the profession in the past two decades to realize that
integrity is ultimately the best response. In situations where its difficult to determine if
something amiss is actually occurring it is at least the responsibility the young professional to
seek consultation on this issue to insure that fair accusations are being made as it could result in
negative and unintended consequences otherwise. It is becoming increasingly easier and more
attractive for people to come forward about questionable practices leaving no question about
disclosure and integrity as the most formidable route for the young professional seeking to define
their character in a world of ethical dilemmas.
Susan Kuang
ACC 372H - Needles
Bonus Ethics Paper
References
Cosgrove-Mather, B. (2005, August 10). Former World Com Exec Gets Prison. Retrieved from CBS News:
http://www.cbsnews.com/news/former-worldcom-exec-gets-prison/
Longstreth, A. (2012, November 21). Mystery Whistleblower Could Reap Big Reward in HP Accounting
Case. Retrieved from Reuters: http://www.reuters.com/article/2012/11/21/us-hp-resultswhistleblower-idUSBRE8AK1J520121121
Marshall, D. J., & Williams, N. J. (2007). Blowing the Whistle on Accounting Fraud: The Sarbanes-Oxley
Protections at A Glance. Retrieved from CFO Magazine:
http://www.cfo.com/media/pdf/SOX%20Whistleblower%20White%20Paper_KMB.pdf
Martinez, B. (2002, July 8). Merck Recorded $12.4 Billion In Revenue It Never Collected. Retrieved from
Wall Street Journal: http://online.wsj.com/articles/SB1026084613164978760
Robert G. Haldeman, J. (2006, November 6). Fact, Fiction, and Fair Value at Enron. Retrieved from New
York State Society of Certified Public Accountants:
http://www.nysscpa.org/cpajournal/2006/1106/infocus/p14.htm