Assignment 1 Review of Accounting Ethics

After news broke that Madoff was arrested all of his investors were shocked, Madoff to them, was the most reputable and trustworthy man they new in the stock market. A majority of Madoff’s clients were brought to him by feeder funds that brought in clients from all over the world including banks, charities, and wealthy investors. Once all of these investors realized that all of their money was gone everybody began to panic. Along with the economic downturn, all the investors wanted was their money; once they realized that there was no money to begin with they began to sue anybody who was related to Madoff hoping that they could recover some of their investments. The ones who truly suffered the most were the people who were the beneficiaries of the charities that invested with Madoff (Klein, 2016, pg. 146). Although the financial impact was huge the emotional impact took a far greater toll. A lot of people felt betrayed by Madoff his family included, as a result some investors and even his

Businesses, investors, creditors rely on accounting ethics. The accounting profession requires honesty, consistency with industry standards, and compliance with laws and regulations. The ethics increase the responsibility and integrity of accounting professionals, and public trust. The ethical requirements influence the management behavior and decision-making. The financial scandal of Enron and Arthur Anderson demonstrates the failure of fundamental ethical framework, such as off-balance sheet transactions, misrepresentation of financial statements, inaccurate disclosure, manipulations with earnings, etc. The confronted accounting profession and concern for ethics in businesses forced regulators to revise the conceptual framework of accounting processes.

I accept the obligations to benefit and not to harm others. There are several reasons. If I were to recognize an obligation to myself alone, then each individual has the right to do the same. In that case anyone can try to harm me to protect their self-interest. Thus, it is in my own self-interest to accept ethical obligations to benefit and not to harm others. If the people in all societies don’t accept this obligation to benefit and not to harm others, than the society would be destructive.

Mergers and acquisitions come with a lot of challenges to the parties as was the case with HFS Incorporated (HFS) and Comp-U-Card (CUC). HFS was a franchise with business interest in the hotel industry, real estate brokerage, and car rental initiatives that traded as Avis, Ramada Inn, and Century 21 (Katz, 2000). CUC engaged in membership based consumer services like auto, dining, shopping, and travel clubs. The HFS and CUC both had their shares traded on the NYSE. Cendant Corporation came about after HFC had merged with CUC. To ensure that certain regulations were complied with, CUC's senior management appeared to have hatched a scheme to ensure that CUC met financial results that the Wall Street analysts anticipated (Katz, 2000). To actualize this, the CUC senior management manipulated recognition of the company's membership sales revenue in order to accelerate the recording of revenue. They improperly utilized two liability accounts related to membership sales that resulted from commission payments. The management consistently managed inadequate balances in the liability accounts and occasionally reversed the accounts directly into operating income. Certain membership sales transactions were not recorded in the books. This aided them in overstating merger and purchase reserves (Katz, 2000). This reversed merger and purchase reserves into operating expenses and revenues. The CUC senior management also improperly wrote off assets and improperly charged

Establishing principles for ethical behavior frequently starts with a policy on ethics. Businesses acquire a policy on ethics to guide their measures and to set up a general meaning of correct versus incorrect. According to the American Library Association, code of ethics is a handbook for suitable behavior (2012).

The repercussions from the collapse of Bernard L. Madoff Investment Securities LLC, whose founder and owner was arrested last Thursday after admitting that his $17 billion investment advisory business was "a giant Ponzi scheme," continue to widen. According to a criminal complaint filed by the FBI and a civil action brought by the Securities and Exchange Commission (SEC), the elderly Madoff estimated that the losses from his fraud exceeded $50 billion. The tally of losses already reported by banks, hedge funds and wealthy investors climbed over the weekend to nearly $20 billion.

One of the best measures CPA’s can provide is awareness to the subject. CPA’s can begin by ensuring the elder is well informed about common scams and risks associated with particular activities as the fraudsters consistently look to take advantage of a changing environment. However, despite implementing preventative measures, the fraudsters may still prevail with a growing complexity in their schemes. Therefore, it is beneficial for CPA’s to recognize the signs of potential abuse to protect their client’s interests.

This dilemma in this ethical case is whether or not Daniel Potter (Dan), staff accountant for Baker Greenleaf accounting firm, should report unethical changes his immediate supervisor, Oliver Freeman, made to an audit report. The problem is that a large piece of real estate was valued on the balance sheet at $2 million. Dan had estimated the property at $100,000. Dan based his value estimate on the condition, location, and how long the property had been vacant. He approached the managers of the subsidiary with a proposal to write down the value of the property by

Madoff had an exaggerated feeling of self-importance. In understanding how he became unethical within his business, it is important to gain insight into the history of the business and its impeccable growth. Madoff opened his firm, Madoff Investment Securities, in 1960 (The Madoff). The firm began honest growth when his father-in-law Saul Alpern, joined to the firm as an accountant. During this time, there were a plethora of competing firms on the New York Stock Exchange, so to gain a competitive edge, Madoff‘s firm began using innovative computer information technology to disseminate its quotes. The technology his firm developed proved to be so successful, that it became the NASDAQ (Weiner). The development of this technology provided the firm with exceptional income and drove his firm to become one of the most successful on Wall Street. Unfortunately, the firm’s success was not enough for Madoff and in the early 1990’s he transitioned from an influential trader to a fabricator of returns by creating the largest Ponzi scheme in history. Madoff claimed to combine blue chip securities with derivatives to hedge risk, which provided rock solid and steady returns, even in down markets. This easily sold his client into investing significant amounts of money, and for some, their life savings. What Madoff’s investors did not realize was that, in reality, the returns for current investors perpetuated by acquiring funds for new

There are a number of reasons which can lead to unethical behavior and practices in accounting. Unethical behavior and practices in accounting refers to when a person contravenes the rules that are designed to make sure that morality and fairness is taken into consideration in the accounting procedures of a company. A violation of these rules is what termed as unethical and should not be tolerated in any company regardless of its mode of ownership ADDIN EN.CITE Tang20031598(Tang & Chiu, 2003)1598159817Tang, Thomas Li-PingChiu, Randy K.Income, Money Ethic, Pay Satisfaction, Commitment, and Unethical Behavior: Is the Love of Money the Root of Evil for Hong Kong Employees?Journal of Business EthicsJournal of Business Ethics13-304612003Springer01674544http://www.jstor.org/stable/25075086( HYPERLINK l "_ENREF_4" o "Tang, 2003 #1598" Tang & Chiu, 2003).

Statement of Financial Accounting Concepts No. 5, “Recognition and Measurement in Financial Statements of Business Enterprises,” established a two-part revenue recognition rule for accountants to follow in deciding when to record revenues. Before revenue is recognized (recorded) in an entity’s accounting records, it should be both realized and earned, according to the following excerpt from SFAC No. 5.

The accounting world has changed dramatically during the last two decades, yet at the same time its core responsibilities remain the same as it has in previous eras. Ethically speaking, company accountants and outside accounting firms have been at the crux of many of the disasters that have befallen major corporations both in America, and globally. The word 'Enron' is a prime example of a company becoming a hiss and a byword, and the lack of ethics evidenced in that case is quite blatant. One report states that "after some significant financial scandals around the world, such as those involving Enron, WorldCom, and Arthur Andersen, various United States bodies have appealed to the public for a greater emphasis on accounting ethics" (Ho, Lin, 2008, p. 883). With that demand for higher personal and company-wide ethical standards and behavior has come a shift of the public's perception concerning the role of accountants and/or accounting firms.

Ethics audit can be used in different fields to analyze ethical risks in organizations. Ethics audit is flexible; it works according to organization’s individual circumstances, including their size, type, legal structure or industrial sector of operation. Main structure and processes of ethics audit model should be followed. As mentioned before the current ethics audit is based on qualitative research with a methodological triangulation being used. For clarifying auditing process visualization of auditing model in Figure 1 is given.

When deciding what to do in certain situations, ethics is what guides an individual to act in a way that is good, or right. Those involved in business settings apply ethics to business situations, known as business ethics. It is expected of businesses, small and large, to follow business ethics. There is a particular framework businesses are to follow. However, the reoccurring news headlines of poor business ethics prove differently. Poor business ethics include bribery, corporate accounting scandals, and environmental issues.

Ethics are principles of behavior based on the ideas of what is good and what is bad. Business ethics, or also known as corporate ethics, is a form of ethics that is used in the business environment. The study of business ethics looks at the decisions that businesses make and whether those decisions taken are right or wrong. Many company executives are unethical, because their number one goal is not to satisfy customers, or clients; Instead their number one goal is to make as much profit as they can no matter what. What this type of companies fail to realize is that there is long-run and short-run profit maximization. A company can maximize its profits by in the short-run by being unethical; however, in the long-run, the bad publicity, lawsuits, etc. will make the company suffer plenty in both the public appearance and the monetary aspect. One of the biggest legal scandals of a company being unethical was in 2001, when, Enron, a natural gas pipeline company went from having $65 billions in assets to being bankrupt 24 days after. Enron Corporation was founded in 1985, in Houston, Texas, it was a merger between Houston Natural Gas Co. and InterNorth Inc. Enron reached dramatic heights, it was the seventh largest corporation in America, and named the “Most innovative company” by Fortune magazine for 6 years straight. Enron innovated the entire natural gas market by adding a natural gas trading segment; making it the world 's largest energy trading company. At its peak