Business Ethics Essay Example | Topics and Well Written Essays - 750 words - 1

Business Ethics - Essay Example In summary, Enron collapsed due to bankruptcy that was associated with a major audit failure of the company’s books of accounts. The bankruptcy led to major losses to shareholders, highlighted by a dramatic fall in prices from 90US dollars to less than a dollar within one year (Thomas, 2002). This was followed by investigations and summoning of the company’s executives who were later sentenced in various prisons. WorldCom was a big company involved in telecommunications business. It was declared bankrupt around July 2002 due to an accounting fraud, but later reemerged for business in 2004 after changing names to MCI (Tolunay et al., 2005). WorldCom was regarded as one of the largest telecommunications company operating in the United States, where it had expanded from Mississippi in 1983. Downfall of WorldCom begun when it started experiencing diminishing infrastructural demands due to the oversupply of telecommunications, and as a result, its revenues had fallen since t he debt was used to finance huge infrastructure investments. Thus, the main cause of demise of WorldCom was the increasing of net income and assets through transfer of expenses to the main capital account (Tolunay et al., 2005). There was an understatement of operating expenses and capitalized costs were treated as investments. There are specific ethical violations in accounting practices that were done by Enron and WorldCom since in the year 2000, Enron had started showing financial difficulties and problems. CEO Jeffrey Skilling did one of the ethical violations, as he had formed a method of concealing and hiding some company operations and financial losses it incurred. This was referred by financial analysts as Mark-to-Market accounting (Seabury, 2011). As Seabury (2011) highlights, it is a method used in trading securities by the determination their actual value at the current moment. This method is considered as not suitable for conventional businesses. The second violation tha t led tocollapse of Enron was issues of corporate governance (Jickling, 2002, p. 4). This was caused by a conflict of interest between the executives and the company. For example, Andrew Fastow, the Chief Financial Officer (CFO), had made a deal with Enron by partnering with it to do business. In these transactions, the CFO concealed losses and debts which were acrued by Enron. Hence, this had a significant impact on the reported Enron profits (Jickling, 2002). The third ethical violation in accounting practice by Enron was referred to as Accounting issues (Jickling, 2002). This was due to the fact that Enron recorded cancelled contracts and projects as assets in its books and did not indicate which ones were cancelled. In accounting issues, Jickling highlights, Enron used derivative to manipulate accounting figures, and this was an ethical violation of accounting ethics. The fourth ethical violation was pension issues whereby, Enron’s employees held large percentage of stock . The last violation of ethics was in financial audit. The firm’s auditor used careless standards in auditing Enron due to a conflict of interest over the fees they levied for their services. They used unrealistic payment ratios which generated controversy as to whether they were taxable or not. On the other hand, WorldCom had also violated some ethics in accounting practice. Tolunay et al. (2005) highlights that there were three ethical violation