Informed Consent in Accounting
Part A Question 1: Did Buddy, Troy, and Betty give informed consent to making the requested accounting adjustments? Explain your answer. You should also explain the concept of “informed consent” before answering the question.
Informed consent is when an individual has the decision to do make willingly whether to participate in a particular action in the organization. In accounting, it is essential to follow international accounting code of ethics to ensure that there is a smooth flow of operation for the organization (Goetsch & Davis 2014). The act of getting information to change something in accounting requires a proper evaluation of the effects to the stakeholders and shareholders of the organization. Adequate information about accounting needs to be considered when making adjustments to the financial data in the system. The change of expenses or account receivable for a company has legal consequences to the individual involved as it offers misleading information to the shareholders of the company. It is essential to state the right amount in accounting to reduce negative consequences of adjusting accounting figures. Overstating and understating require informed consent from the top management as it affects the performance of the company (Smith 2017). Incorrect capital expenses by the accountants provide an inaccurate financial report which is not reliable to the shareholders and stakeholders of the company.
Buddy, Troy, and Betty had the informed consent to adjust the accounts of WorldCom from the Chief Financial Officer Scott Sullivan and Financial Controller David Myers. This was to make the stakes of the company appear higher to the stakeholders of the company while the company was experiencing loss. The manual adjustment of accounts negatively impacted the business as it had to file for bankruptcy from the fraudulent scheme of changing accounting figures. The accountants were required to reduce the expense to meet the earning expectations of the company. Manipulation of accounts would provide wrong information to the shareholders of the company (Zadek, Evans & Pruzan 2013). Buddy, Troy, and Betty were mid-level accounts who were required to take orders from the top management with the decision being unethical to the operation of the business. Physically adjusting the financial result would lead to jail terms to the people who were involved in the process. Buddy, Troy, and Betty were uncomfortable to make the account adjustments as it is not ethical, but they had informed consent from the top management of the company where they had to follow the stated orders to keep their jobs. Conflict of interest between the organization management and staff requires being handled through the use of a proper ethical policy (Bampton & Cowton 2013). Incorrect capital expenses about the company make it hard to identify the real value of the company making it hard to come up with a valid financial decision.
Abuse of Official Position in Business Ethics
References:
Bampton, R., & Cowton, C. J. (2013). Taking stock of accounting ethics scholarship: A review of the journal literature. Journal of Business Ethics, 114(3), 549-563.
Goetsch, D. L., & Davis, S. B. (2014). Quality management for organizational excellence. Upper Saddle River, NJ: Pearson.
Smith, M. (2017). Research methods in accounting. Sage.
Zadek, S., Evans, R., & Pruzan, P. (2013). Building corporate accountability: Emerging practice in social and ethical accounting and auditing. Routledge.
Part A Question 2: Did Scott and David engage in an abuse of their official position? Explain your answer. In your answer, you should also explain what “abuse of official position” means regarding business ethics.
Scott and David engaged in abuse of official office by asking the mid-level accountants to make adjustments to the account which is unethical and illegal. Misuse of official position is when a leader offers misleading orders to the junior staff which is compromising (Drury 2013). Scott was the Chief Financial Officer, and David was the Financial Controller of WorldCom who offered the adjustment of accounts to provide a misleading financial statement. The action was risky to the accountants as they have to reduce million of dollars of expenses to meet the required financial statement of the organization. This fraudulent scheme was aimed at improving the net profits for the company which was making losses from business operations. After discovering the scheme, there was the reduction of the value of company shares. The reputation of the company was destroyed and had to be declared bankrupt despite the changes of values in the financial statement (Brigham 2014). The accountant was vulnerable as they had to follow the orders from their bosses Scott and David so that they can keep their jobs. The situation was unethical, but the accountants had to follow the rules to distort the accounting figures in the system. The physical changes were done on over hundred million dollars without any support of making adjustments to the accounts.
The accountants were required to offer the financial reports in a few days to the public by making physical adjustments to the accounting values. The financial statement provides the company’s position which is essential in deciding that particular industry. Top managers are required to follow the set company policy when giving orders to the junior staff to reduce cases of abuse of position. Business ethics makes it possible for the leaders to delegate actions that will provide a smooth flow of the company (Rostamzadeh, Govindan, Esmaeili & Sabaghi 2015). The instruction of physically changing financial led to ethical dilemma to the mid-level accountants. The supervisory role of an organization requires the use of proper skills and knowledge that are ethical for honest practices in the organization. Appropriate use of power by top managers improves the morale of other employees as the functions are highly acceptable in the business environment (Kianto, Ritala, Spender & Vanhala 2014). Ethical enforcement of regulation in business provides a competitive advantage in the market. Therefore moral leadership requires the following of set obligation to reduce legal issues from Production And Financial Reporting.
Negative Corporate and Ethical Culture at WorldCom
References:
Brigham, E. F. (2014). Financial management theory and practice. Atlantic Publishers & District.
Drury, C. M. (2013). Management and cost accounting. Springer.
Kianto, A., Ritala, P., Spender, J. C., & Vanhala, M. (2014). The interaction of intellectual capital assets and knowledge management practices in organizational value creation. Journal of Intellectual Capital, 15(3), 362-375.
Rostamzadeh, R., Govindan, K., Esmaeili, A., & Sabaghi, M. (2015). Application of fuzzy VIKOR for evaluation of green supply chain management practices. Ecological Indicators, 49, 188-203.
Part A Question 3: Based on what you have read in the case study, describe the corporate and ethical culture of WorldCom. You should then perform some research into WorldCom’s culture and explain what others have reported.
Corporate culture is the behavior of employees in an organization which can be either positive or negative culture (Guiso, Sapienza & Zingales 2015). It is vital for a team to focus on a positive corporate culture to improve ethic practices during production. WorldCom had a negative corporate and ethical culture as the top management lacked the moral leadership to govern daily operations. The CFO of the company Scott Sullivan and Financial Controller David Myers instructed the accountants to change the number to come up with a desirable financial report. Moral leadership is required in an organization to handle unethical dilemmas when performing duties regarding an organization. The adjustments of hundreds of millions of dollars would provide inaccurate financial report to the report (DeBacker, Heim & Tran 2015). Buddy, Troy, and Betty had to follow the instruction to avoid being replaced by the organization which would make it hard to meet their daily needs. WorldCom was an unethical organization as the managed pressured the employees to act unethically to come up improved earnings of the company. The negative corporate an ethical culture in WorldCom led to lack of teamwork to come up with a proper decision that will improve the performance of the organization. For a business to succeed the corporate and ethical culture is required to be positive for a corporate culture that will enhance teamwork and collaboration for an increased profitability from production (Bebbington, Unerman & O’Dwyer 2014). Employee empowerment is essential in developing a positive corporate and ethical culture to handle various problems in the organization.
Ethical culture requires the staff to adhere to the commitments to the organization for the achievement of set personal and corporate goals. The top managers are needed to develop strategies that will ensure an extended survival of business in the dynamic external environment. The appropriate approach reduces unethical cases such as manipulation of financial figures in WorldCom. Positive corporate and ethical assures quality financial reporting to the public (Carroll 2015). Transparency and communication of plans are essential in handling ethic dilemmas in the company. The actions implemented by the management require considering legal requirements for a continuous development of the business. Equality is vital in improving the corporate and ethical culture of an organization to deal with issues facing the company ethically. WorldCom’s corporate and ethical culture requires modification to reduce unethical accounting during financial reporting. The company is expected to come up with a code of ethics that will regulate actions of employees and management.
References:
Bebbington, J., Unerman, J., & O’Dwyer, B. (Eds.). (2014). Sustainability accounting and accountability. Routledge.
Carroll, C. E. (Ed.). (2015). The handbook of communication and corporate reputation (Vol. 49). John Wiley & Sons.
DeBacker, J., Heim, B. T., & Tran, A. (2015). Importing corruption culture from overseas: Evidence from corporate tax evasion in the United States. Journal of Financial Economics, 117(1), 122-138.
Guiso, L., Sapienza, P., & Zingales, L. (2015). The value of corporate culture. Journal of Financial Economics, 117(1), 60-76.
Part A Question 4: Describe how an institutionalized ethics program might have helped WorldCom at this very moment (described in the case study). You should explain what a useful ethics program might contain.
WorldCom did not have institutionalized ethic programs which were controlling daily operation of the business. The Chief Financial Officer and Financial Controller delegated unethical accounting practices to the accountants which involved adjustment of values in the accounting system physically. Buddy, Troy, and Betty had to manipulate accounting data so that they can come up with a modified financial report as requires by David, the financial controller. Lack of ethics code of conducts made it possible for the top managers to manipulate other staff to doing unethical practices in accounting (Shukeri, Wan-Hussin & Aripin 2015). The accounting entry system requires regulation by the code of ethics which requires an individual to make changes to accounts entry while indicating the reason for changing the entry in the system. It is vital for a business to follow the set financial reporting laws for a proper report that could be used in decision making. The investors consider the financial report of a company in deciding whether to invest in a particular group thus it is essential for the reports to be accurate and reliable to the stakeholders. Accounts should have an ethical culture that will reduce illegal activities in the organization from the practices (Ionescu 2016). WorldCom employees who were involved in manipulation of accounting data were jailed due to lack of being ethical and not following set laws regarding financial reports.
Institutionalised ethics program requires the employees and management to come up with ethical decisions which have a positive impact on the performance of the organization (Crane & Matten 2016). The wrong company accounting led to the wrong statement of operational expenses leading to an overstated profit from the financial reporting. There was false $3.8 billion of accounting errors which negatively impacted the investors of the company. The accounting issue led to lay off of over 17,000 employees for the company when it was declared bankrupt (Hancock, 2002). An institutionalized ethic program would have handled the issues in the company as the accounting, and other processes of the company would have been ethical following the stated ethic code of the company. Ethics code in an organization guides the employees and management before coming with a decision that will affect the performance of an organization. The internal and external stakeholders of the company consideration before implementing a decision for the achievement of set goals through ethical production.
References:
Crane, A., & Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
Hancock, D. (2002). World-Class Scandal At WorldCom. Cbsnews.com. Retrieved 7 October 2017, from https://www.cbsnews.com/news/world-class-scandal-at-worldcom/
Ionescu, L. (2016). The Role of the Professional Accountants in Business Administration. In International Conference on Economic Sciences and Business Administration (Vol. 3, No. 1, pp. 184-188). Spiru Haret University.
Shukeri, S. N., Wan-Hussin, W. N., & Aripin, N. (2015). Signing Auditor Quality and Audit Delay: Preliminary Evidence. Advanced Science Letters, 21(6), 2007-2010.
Part B: Taking the viewpoint of Buddy Yates in this case study, step through what his decision might have been had he followed the AAA decision model. You should fully explain his options under every step of the seven-step model.
Proper decision making is essential in business as it makes it possible for an organization to achieve set goals from production. Buddy Yades was the director of accounts for WorldCom Company who was instructed to physically modify account entries in the accounting system by David Myer the Financial Controller. As the account director, Buddy had an option to refuse to the changing of the accounting entries it would lead to inaccurate financial reporting to the public. Buddy asked the two mid-levels accountants, Betty Vinson and Troy Normand, to adjust as requested by the top management of WorldCom. Buddy, Troy, and Betty were all uncomfortable to adjust to account entries as it is unethical and illegal. Despite being uncomfortable with the decision, they agreed to follow the decision by the top management of physically making changes to the WorldCom accounting system to meet the earning expectation of the company. This decision of manipulation the financial report of WorldCom led to jail time for all individual involved in the process of financial reporting to the public. Buddy would have considered the use of AAA decision model to come up with the most suitable decision that is legal and ethical. AAA decision model focuses on coming up with a valid choice that will provide growth for the company (Anderson et al. 2015). The mission, values, and vision of the company are required to be considered in coming up with a decision will provide expansion of the organization. Business ethics is an essential component in coming up with a decision that is highly accepted in the business operations (Chen & Cheng 2013). The seven steps of AAA decision model state the problem, check the facts, identify relevant factors, develop a list of options, test the options, make a choice based on steps 1 to 5 and review steps 1 to 6. This process makes it possible for an organization to come up with practical strategies that will increase profitability from production.
This is where an individual identifies the conflict of interest of a decision requiring considering all the stakeholders of the business. It is essential to come up an arrangement where all people involved are comfortable in implementing the decision for a continuous development of operations in the organization. Proper analysis of the internal and external business environment makes it possible to identify the areas in the organization which requires change. The decision made is necessary to handle the specific problem facing the organization for a stable performance in the targeted market. The cost and control measures are identified when acquiring information about the problem facing the business (Jeston & Nelis 2014). This makes it possible to have an opportunity to realize set goals from production through the identification of a problem in the organization. The internal factors to assist in identifying the problem are the employees and management of the organization as they are well exposed to business operations. The external factors to consider when coming up with a problem statement are suppliers, creditors, consumers and the community. The management can decide to handle the identified problem in business operation for the achievement of set production levels.
This step focuses perform analysis to the problem factors considering the laws and individuals involved in the decision. The managers use skills and knowledge to identify whether the problem requires a decision. There are some problems which are handled with the policies of the company thus does not need another choice to handle the problem. The causes of the problem are identified to develop a measure that will control the performance of the organization (Hartman, DesJardins & MacDonald 2014). The constraints in making the decision require an evaluation of to have an insight on the problem facing the business. People and process are analyzed in developing facts regarding a particular problem facing the organization to create a decision that is highly acceptable to the stakeholders of the company. The issues in the organization require being clarified through a closer examination of the situation. A closer inspection of problems facing the business provides a technique to handle different situations facing the company (Wild, Wild & Han 2014). Identification of all facts in question reduces the possibility of coming up with an erroneous decision. The decision which is based on facts improves the performance of the business through quality production.
The relevant factors in making a decision include people, laws, professional code and resources available in the organization. Decision making requires skills and knowledge to identify the factors which are related to the problem facing the organization. The person is where the management is necessary to consider the internal and external stakeholder in coming with a decision which is highly accepted in the business environment. The internal stakeholders are directly related to the performance of the business such as employees and management of the organization. The employees and management identify the issue facing the industry requiring consideration when coming up with a decision (Zsambok 2014). The external stakeholders are suppliers, consumers, creditors, and community are relevant factors in making a decision. Business laws implemented in the nation require evaluation before coming up with a decision to avoid legal issues during production. The professional code is used to govern the operation of employees such as accounting requiring following the set code of conduct for that particular job. The constraints are the difficulties in coming up with a valid decision that will handle the problem facing the organization.
This is stage is vital in reducing dilemma in decision making by identifying the advantages and disadvantages of the decision. The management can come up with different options. Ethical decision making requires the gathering of essential information which will benefit the performance of the business (Hartman, DesJardins & MacDonald 2014). Training and development of employee reduce dilemma decision making for a stable performance of the company. The developing list of option uses open questions to identify the opportunity that influences the development the most appropriate decision. Alternatives in decision making provide the management with required information for an effective plan to deal with the problem facing the business (Goetsch & Davis 2014). Open questions of yes or no is used to eliminate the options that will deal with the problem facing the business. The most suitable choice is to choose in ensuring that the decision is acceptable to the employees and the management. An individual should identify the way to address the people affected by the decision to reduce resistant to change in the company. The option implemented is required to handle constraints of decision making for a continuous improvement of production in the business.
The tests aim at developing at a popular decision that will handle issues facing the business through a stable performance. These decisions are required to be flexible and feasible to ensure that there is the achievement of set objectives from production. The following tests are performed on the option to ensure there is a sustainable performance in the organization. Harm test which evaluates the dangers imposed on implementing the decision in business operation. Publicity test is analysis the expected view of the stakeholders after the decision is published. The views from the stakeholder are used to improve the decision to make it more feasible through production (Tjader, May, Shang, Vargas & Gao 2014). The defensive test involves sharing with other employees or peers to get their views about the option in handling the business problem. A committee is selected to evaluate the possible effects of the decision to the improvement of performance. Reversibility test is used to understand if the option is the right for the company by comparing several options. Colleague test requires suggestions from other people to evaluate the option efficiently. The professional test involves consideration of ethics and legal requirements in handling options. Organization test is the use of set company policies in coming up with a practical decision for an increase in a competitive edge.
References:
Anderson, D. R., Sweeney, D. J., Williams, T. A., Camm, J. D., & Cochran, J. J. (2015). An introduction to management science: quantitative approaches to decision making. Cengage Learning.
Chen, Y. S., & Cheng, C. H. (2013). Hybrid models based on rough set classifiers for setting credit rating decision rules in the global banking industry. Knowledge-Based Systems, 39, 224-239.
Gamble, J. E., & Thompson, A. A. (2014). Essentials of strategic management. Irwin Mcgraw-Hill.
Goetsch, D. L., & Davis, S. B. (2014). Quality management for organizational excellence. Upper Saddle River, NJ: Pearson.
Hartman, L. P., DesJardins, J. R., & MacDonald, C. (2014). Business ethics: Decision making for personal integrity and social responsibility. New York: McGraw-Hill.
Jeston, J., & Nelis, J. (2014). Business process management. Routledge.
Johri, D. C., Saraf, V., & Ghosh, A. (2014). Corporate Policy-its Determinants and Importance in Present Corporate Scenario. International Journal on Emerging Technologies, 5(1), 14-16.
Tjader, Y., May, J. H., Shang, J., Vargas, L. G., & Gao, N. (2014). Firm-level outsourcing decision making: A balanced scorecard-based analytic network process model. International Journal of Production Economics, 147, 614-623.
Wild, J. J., Wild, K. L., & Han, J. C. (2014). International business. Pearson Education Limited.
Zsambok, C. E. (2014). Naturalistic decision making. Psychology Press.
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