Reference no: EM132183693

Ethics as a Road Map through Difficulty

Instructions

Journal entries are private between you and the instructor. In this course, journals are low stakes opportunities to submit small portions of your final project. Utilize these journals to provide required details related to your final project, in addition to questions that still remain about the milestones.

Background Information

If you are anticipating working for a company, do you look at their ethics? It is difficult to determine if a company is ethical or not. If the CEO is involved in unethical practices, it is nearly impossible to determine if the company has ethical leadership. Your ethics are what will guide you in difficult times. Read about the Enron fiasco in this article, The Real Scandal (Links to an external site.)Links to an external site.. There were several senior people in the organization that were determined to hide financial wrongdoings from the public. Ultimately, managing yourself requires being aware of the question, 'What are my values?' There should be a compatibility between the values of the organization and the values of the employees.

Reference

The Economist. (2002). The real scandal

Enron

America''s capital markets are not the paragons they were cracked up to be

THE collapse of Enron was spread over several months late last year, when the world''s attention was still on Afghanistan. The Texas-based energy-trading giant, once America''s seventh-biggest company, declared bankruptcy on December 2nd. Yet it has taken until now for this simmering affair to boil over in Washington, DC. And, as so often, the ensuing scandal risks focusing on the wrong issues.

On Capitol Hill, much of the talk has been of the close links that Kenneth Lay, Enron''s chairman, had with George Bush and other Texas Republicans. The press has been burrowing into how often Mr Lay and other Enron bosses called administration officials to beg fruitlessly for help. There has been tut-tutting about congressmen collecting campaign money from Enron, which, far from buying Republicans alone, was admirably bipartisan: three-quarters of the Senate took Enron cash. And public indignation has been roused over how much Mr Lay and his colleagues made from Enron shares, unlike their workers, whose pension funds were largely invested in Enron stock that they were unable to sell in time.

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Yet little of this is new. Certainly, Enron''s demise confirms some unattractive features of American public life (see article). The campaign-finance system puts too many politicians under obligations to big-business donors: Enron lobbied successfully for exemption from financial regulation for its energy-trading arm, and it also helped to draw up the administration''s energy policy. Executive pay and stock options have long given bosses too much for doing too little. Some companies have been at fault in encouraging workers to invest pension money in their shares; after Enron, legislation to limit this is urgently needed. But for the most part, the bankruptcy of Enron was just part of the rough-and-tumble of American capitalism, the most successful system the world has known.

Who guards the guardians?

Yet there is one big issue that should now attract more attention: the governance of the public capital markets, and especially the role played by auditors. The capital markets, and indeed capitalism itself, can function efficiently only if the highest standards of accounting, disclosure and transparency are observed. In America, well-policed stockmarkets, fearsome regulators at the Securities and Exchange Commission (SEC), stern accounting standards in the form of generally accepted accounting principles (GAAP), and the perceived audit skills of the big five accounting firms, have long been seen as crucial to the biggest, most liquid and most admired capital markets in the world.

The collapse of Enron is now raising some big questions (see article). Andersen, the company''s auditor, has admitted to an "error of judgment" in its treatment of the debt of one of Enron''s off-balance-sheet vehicles; these vehicles led to an overstatement of profits by almost $600m over the years 1997-2000. This week Andersen fired the partner in charge of the Enron audit, when it found that he had ordered the disposal of documents even after the SEC had subpoenaed the firm as part of its investigation into Enron. This is not the first time that Andersen has been in trouble: last year, it was fined over its audit of another Texan company, Waste Management, and it also had to settle a suit over the audit of Sunbeam, a Florida-based company.

If this were simply a case of one accounting firm doing wrong, that would be regrettable but containable. Andersen may go under thanks to Enron litigation anyway. But the truth is that it is not unique. It may have been unusually culpable, but all the accounting firms have made mistakes in the past. Only this week, KPMG became the latest to be censured, this time for breaking rules barring investment in audit clients.

That points to the need for systemic reforms, in three areas. The first is the regulation of auditors. For years the profession has insisted that self-regulation and peer review are the right way to maintain standards. Yet Enron has shown that this is no longer enough. The Public Oversight Board should be turned from a self-regulatory body appointed and financed by accountants into a statutorily independent organisation reporting to the SEC. And it should be given teeth, including the power to ban or fine auditors for misdeeds.

Second is the urgent need to eliminate conflicts of interest in accounting firms. Andersen collected audit fees of $25m from Enron, its second-biggest client, last year, but it earned even more for consulting and other work. The accounting firms have fought off attempts to limit or stop them undertaking consulting work for audit clients; they insist that there is no real conflict of interest. Yet if confidence in auditing is to be regained, perception is as important as reality. The SEC should now pursue again the ban that its previous chairman, Arthur Levitt, sought to impose in 1999. There is also a strong case for compulsory rotation of auditors, say every seven years: Andersen had audited Enron since its birth in 1983.

Lastly come America''s accounting standards. GAAP standards used to be thought the most rigorous in the world. Yet under British standards, Enron would not have been able to overstate its profits by so much. And, once again, although Enron may have been egregious, it is not a lone offender. Several dotcoms and technology companies have used what is euphemistically called "aggressive accounting" to boost reported earnings. Too many companies have got away with "pro forma" accounting that delivers nice numbers by omitting such items as stock write-offs, special transactions, interest charges or depreciation. And the accounting treatment of stock options has long been a disgrace.

The SEC and its standard-setting body, the Financial Accounting Standards Board, should now revisit GAAP; they might even embrace international accounting standards instead. There is a lesson from British experience in the 1980s, when several audit scandals led to both tougher regulation and more rigorous accounting standards. The Enron scandal shows that America can no longer take the pre-eminence of its accounting for granted. That is a far bigger concern than any number of congressional investigations.

Prompt

In Milestone Three, you will complete your final project, which includes the topics of conflicts and leadership ethics. This journal assignment is private between you and the instructor. Utilize this journal assignment to investigate the ethics employed by the organization you chose in the Module One journal. Additionally, note what challenges this organization faced, and evaluate their response to these challenges. What successes did they experience in the face of challenges, and what was the role of leadership in that success? What improvements can this organization make as they face future challenges?

Tasks
1. Describe the ethics employed by the organization chosen in Module One.
2. Identify challenges faced by the chosen organization.
3. Evaluate the chosen organization's response to challenges.

All Journal entries must be at least 2 pages in length and in APA format.

Compose your work in a .doc or .docx file type using a word processor (such as Microsoft Word, etc.) and save it frequently to your computer. For those assignments that are not written essays and require uploading images or PowerPoint slides, please follow uploading guidelines provided by your instructor.