Ethics of Penn Square and Dow Corning Essay

1652 Words Aug 24th, 2012 7 Pages
Ethics of Penn Square and Dow Corning

Ethics of Penn Square Bank and the Dow Corning Bankruptcy Penn Square Bank: What were the ethical pressures on the firm concerning documentation, credit extension, and revenue recognition that lead to the final collapse? What should have been done to reduce or offset these pressures?

Penn Square Bank was a small commercial bank in Oklahoma City which made high-risk financial loans during the late 1970s in the oil boom. The bank ultimately collapsed during the early 1980s due to their financing practices. The bank was overestimating and valuing its customer’s gas and oil reserves that let at that time to fund a bigger credit line. In addition, the bank didn't request clients to complete
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For offsetting ethical pressures to increase revenue recognition, the Penn Square Bank should have stuck to FASB principles. The GAAP should have been complied with and this would have helped avoid revenue recognition problems.

Dow Corning Corporation was founded in 1943 as a jointly owned enterprise by The Dow Chemical Company and Corning Incorporated to develop the potential of silicone materials. Dow Corning's principal businesses were silicone materials and polycrystalline silicon.
In the early 1960’s Dow Corning supplied Texas plastic surgeons Frank Gerow and Thomas Cronin with silicone for their medical implant device research. Gerow and Cronin, using Dow Corning silicone, invented the first silicone breast implant as a device to aid women who had undergone mastectomies. At that time, the Food and Drug Administration had no regulations governing implantable devices. Companies like Dow Corning had to determine the safety of devices on their own. The surgeons conducted clinical trials of the implant prior to product introduction in 1964. In the next several years, the implant grew popular for cosmetic surgery as well as reconstructive, and Dow Corning cornered both markets. Between 1960s and the mid-1990s, about two million women nationwide have received breast implants, most of them for cosmetic reasons. However, some women have started to complain that the implants have ruptured, allowing gel to leak into the breast cavity and migrate to other

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