Accounting

The recent accounting scandals have generated a closer look on the unfavorable publicity for people who are in the accounting profession. Deciding on what is right or wrong can be different among those involved in the accounting profession especially since what may look as being unethical does not necessarily make it illegal.

It is apparent, therefore, that ethical values provide the foundation which civilized society function. Civilization collapses when this foundation is weak. (Smith  Smith). Each individual needs to answer the question on what his aspiration is because if integrity is secondary, then, it will be sacrificed especially in situation where a choice must be made. (Smith  Smith).

G.K. Chesterton, an English writer said that America was the only nation in the world founded on a creed. This was set with dogmatic and even theological lucidity in the Declaration of Independence. He actually referred to the second paragraph of Americas founding document We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights,  that among these are life, liberty and the pursuit of happiness. (Smith  Smith).

Among all the virtues that can lead to political prosperity, the one that is a true pillar of strength for the company is its ethical practices and integrity. John Adams, the second U.S. President addressed the Massachusetts militia in 1789 stating in no uncertain terms that We have no government armed with power capable of contending with human passions unbridled by morality and religion. Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other. (Smith  Smith).

Enron, one of Americas largest companies, collapsed in 2001 which led to massive investigations of a range of criminal activities perpetrated by some of Enrons top executives. The scandal developed into a case study of corporate fraud, poor management decisions, and faulty accounting practices (The Enron Affair).

The Enron Scandal
Enron had built itself into the seventh largest company in the United States, with annual revenues of 100 billion. (American Law Encyclopedia Vol. 3, 2009) In December 2000, the companys stock sold for as much as 84.87 per share. However, stock prices fell throughout much of 2001. In October, the company announced that it had overstated its revenues, claiming losses of 638 million during the third quarter of 2001 alone. Stock prices then plunged, hurting investors and employees with retirement plans that were tied into company stock. By the beginning of December, Enrons stock prices had fallen to below 1 per share. Enron filed for Chapter 11 bankruptcy protection on December 2, 2001. To date, the event constituted the largest bankruptcy in U.S. history.

Initial investigations into the Enron case focused on fraud. Fraud is defined as a false representation of a matter of factwhether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosedthat deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury. (American Law Encyclopedia Vol. 4, 2009)

Rules of Conduct and Ethics
In the Chapter 1 of his book, Ethical Issues in the Practice of Accounting Michael Josephson, enumerates  Ten Universal Values. They are honesty, integrity, promise-keeping, fidelity, fairness, caring, respect for others, responsible citizenship, pursuit of excellence, and accountability. Ethical values in the accounting profession are definitely a virtue as Chuck Colson  also remarked
Societies are tragically vulnerable when the men and women who compose them lack character. A nation or a culture cannot endure for long unless it is undergirded by common values such as valor, public-spiritedness, respect for others and for the law it cannot stand unless it is populated by people who will act on motives superior to their own immediate interest. Keeping the law, respecting human life and property, loving ones family, fighting to defend national goals, helping the unfortunate, paying taxes--all these depend on the individual virtues of courage, loyalty, charity, compassion, civility, and duty. (Smith  Smith)

In the U.S. legal system, fraud is a specific offense with certain features. Fraud must be proven by showing that the defendants actions involved five separate elements (1) a false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result. (American Law Encyclopedia Vol. 4, 2009)
Fraud is commonly understood as dishonesty calculated for advantage. A person who is dishonest may be called a fraud. Enron executives committed corporate fraud. Corporate fraud cases are largely governed by the Securities Exchange Act of 1934 along with other rules and regulations propagated by the Securities and Exchange Commission. (American Law Encyclopedia Vol. 4, 2009). Enron committed corporate fraud through the companys financial reporting practices. Though the company followed generally accepted accounting principles (GAAP), these practices gave the false impression that the company was more profitable and more secure than it really was. The company reported revenues that were actually funds flowing through transitional transactions with related companies. Moreover, the company hid its losses and debts in partnerships that did not appear on Enrons financial statements. (American Law Encyclopedia Vol. 4, 2009)
 
Overstating profits
Enron officials have acknowledged that the company has overstated its profits by more than US580 million since 1997. Also, in the four years between 1996 and 1999, Enron told shareholders that it has made US2.3 billion profit, while it reported 3 billion losses to tax authorities. (Khasawneh, 2005). Several of Enrons senior executives reportedly had personal interests in certain risky transactions. These executives even sold Enron stock while at the same time convincing employees to hold their stock. The board of directors of the company also allegedly failed to provide significant oversight regarding the auditing and reporting by the company. (American Law Encyclopedia Vol. 4, 2009)
The first major criminal charges involving an Enron executive were brought against Michael Kopper, who had served as an aide to chief financial officer Andrew Fastow. Kopper pleaded guilty to charges of money laundering and conspiracy to commit fraud in August 2002. Kopper implicated Fastow, claiming that Fastow had conducted transactions on behalf of Enron for the benefit of third-party partnerships owned by Fastow. (American Law Encyclopedia, 2009)

In November 2002, the Justice Department indicted Fastow on 78 counts, including fraud, money laundering, and obstruction of justice. The criminal indictment did not include former CEO Kenneth Lay, former CEO Jeffrey Skilling, or any other top executives. The Justice Department also announced that it could file a superseding indictment with additional charges. This superseding indictment might name additional defendants as well. (American Law Encyclopedia, 2009).

Lynn Brewer, a former Enron executive and currently founding chairman of The Integrity Institute Inc., said that while former Enron Chief Executive Jeffrey Skilling never told company employees to cook the books, he said, find me the revenue. That pressure, she said, led to unethical company decisions to hide accounting practices and poor business operations. (Tom, 2006). Brewer said when she initially noticed fraud at Enron, she was complacent because of fear. She eventually became comfortable with the payoff, making 2,000 on stock options. Other executives who knew about fraud kept quiet as they made financial gains through stock options. However, they were equally guilty as those who committed the fraud. (Tom, 2006). Often, the decisions that we make at the time seem like the lesser of two evils. Many times, business decisions are made quickly, and risk managers are involved in decisions when its too late, Brewer said. (Tom, 2006).

Indeed, greed in the accounting profession, as well as in any field of work, can result in the ruin of that company. Although the objective of any firm is to increase its profits, this requires public trust. It is important to always remember that ethics in the accounting profession depends on trust that is rooted on ethical business practices.