Module 3: Writing Assignment

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Aspen University: BUS560 - Business Ethics

12/28/2014

Module 3: Writing Assignment

Part 1

1. Consider the functional departments reviewed in chapter 3.

Which department do you think faces the greatest number of

ethical challenges? Why?

Profits are the bottom line for any business and businesses

are dependent on the numbers produced by their financial

department to keep their business afloat. The finance function

of an organization can be divided into three distinct areas:

financial transactions, accounting, and auditing. The flow of

money involves receiving money from customers and using that

money to pay employees, suppliers, and all other creditors

with enough left over to create a profit that can be either

reinvested back into business or paid out to shareholders.

The laws for accounting are left for open interpretation

and abuse. Simply meeting the needs of an organization’s

stakeholders can present conflicts of interest when you

consider the possibility that what is best for your

shareholders may not be best for your employees and the

community.

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Module 3: Writing Assignment

The effects of ethical behavior in accounting are far

reaching in the economy. Every business entity has an

accounting professional provide information at some point in

the organization’s life cycle. Many accounting professionals

are tempted to alter financial results and often rationalize

the behavior by calling it creative or aggressive accounting.

Aggressive accounting is the process of employing questionable

accounting methods to boost results. An accountant may record

revenues and expenses in an incorrect manner or omit expenses

altogether. Repeated incidences of aggressive accounting are a

result of the lack of ethical behavior.

Example

A common example of an ethical dilemma involves

management instructing a subordinate employee to record a

transaction in an incorrect manner. For instance, take a

company with a Dec. 31 year-end. The contracts signed in this

company are usually signed Dec. 1 and are a year in length.

Accounting principles require the company to record the

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Module 3: Writing Assignment

revenue for the contract for one month only, the month of

December. The remainder of the revenue is recognized on next

year’s financial statements. However, management instructs an

employee to record the entire amount of the contract in the

month of December to boost revenues for the current year end.

Management receives a bonus for the boosted revenue and the

subordinate receives recognition in an upcoming performance

review.

Finance department faces more ethical challenges than any

other department because the impact they can create is huge

and it is very easy to manipulate in order to satisfy share

holders and not be caught without proper auditing.

2. Provide three examples of unethical behavior that you have

observed at the company you work or (or worked for in the

past). What were the outcomes of this behavior?

a. While working on one of the corporate flagship projects we

found a defect in the application after the user sign-off

was complete and the product was scheduled to go live in two

days.

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Module 3: Writing Assignment

Now it was up to us to leave the defect and fix it in

next release after the user has found the issue, or

communicate the issue to users and assess the impact and delay

the project go live if needed.

We did convey the defect to our management first and then

to business users. We then based on impact assessment we

delayed the project until the defect was fixed and retested.

We felt good that even though the project was delayed by few

weeks we did the right thing.

b. While filing a contract provided by one of our software

vendors we found an error in accounting. This error was

because the quantity of items we ordered was changed

multiple times and the accounts didn’t reflect that aspect.

The contract was reviewed by both the parties and signed.

We did decide to report the issue to both the parties and

have it corrected though that would mean our organization

paying couple of hundreds of thousands more.

c. One of the vendors offered us tickets to a very popular

sporting event while we were still going through the RFP

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Module 3: Writing Assignment

(request for proposal) process. Our team rejected to accept

the tickets.

3. What are “Creative book keeping techniques”? Provide three

examples.

Accounting practices that follow required laws and

regulations, but deviate from what those standards intend to

accomplish. Creative accounting capitalizes on loopholes in

the accounting standards to falsely portray a better image of

the company. Although creative accounting practices are legal,

the loopholes they exploit are often reformed to prevent such

behaviors.

Example 1: Big bath charges: This application is applied

when a company places large amounts of money into charges

associated with company restructuring, this in turn,

alleviates finances from the balance sheet giving them a so

called big bath. The theory behind this on balance sheet

technique is that when future earnings fall short, these

conservative estimates miraculously become and allow the

company to achieve their expected earnings.

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Module 3: Writing Assignment

Example 2. “Gross Profit” Entries: the accounting staff may be

directed by executives to make improper adjusting entries to

reduce cost of goods sold and accounts payable in every

quarter from the first quarter of first year through the first

quarter of fourth year. There is no substantiality in these

entries. They are specifically indebted to manipulate

Company’s reported earnings.

Example 3: “Dead Deal”: Expenses the company may recognized

as big shilling amount from a litigation settlement, but when

the settlement was not even complete. It is absolutely

improper and is done in order to increase the reported income.

4. Explain the potential ethical challenges presented by

generally accepted accounting principles (GAAP).

The accounting profession is governed not by a set of laws

and established legal precedents but by a set of generally

accepted accounting principles, typically referred to as GAAP.

Like any standard operating procedure these are open to

interpretation and abuse.

The taxation rates that Uncle Sam expects you to pay on

generated profits may be very clear, but the exact process

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Module 3: Writing Assignment

by which you arrive at that profit figure is far from clear

and places considerable pressure on accountants to manage the

expectations of their clients.

For example, many of the executives who have been brought to

trial because of the financial collapses of their companies

have said, “I didn’t break the law, but I used a loophole in

the law”.

Ethical decisions involve looking beyond the law to

principles that do more than shave the treetops of legal

boundaries.

In defining business ethics, we are really defining the

voluntary role of business; how does a business behave when

the law does not dictate its conduct or the law permits

conduct that might benefit shareholders but is harmful to

others. Complying with business ethics includes what

contributions and efforts should corporation make to others

beyond their shareholders?

‘‘Interpreting those rules has always been more art than

science, reliant in no small part on the good faith of those

applying them in everyday situations. For very smart people

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who saw the rules as something to be gotten around, well, it

wasn’t all that hard to do – in fact; some former Enron

employees argue that the rules themselves provided a road map.

Enron, which prided itself on employing only the very smartest

people, took that view further than any company that’s ever

existed. ‘‘We tried to aggressively use the literature to our

advantage,’’ admits a former Enron accountant. ‘‘All the rules

create all these opportunities. We got to where we did because

we exploited that weakness.” The mental mindset of these

Enron employees was that they were doing exactly what they

should be doing in complying with a rule-based framework for

accounting – because their view of morality was consistent

with a legally based intentional amoral management model

(Carroll and Buchholtz, 2003, p. 185). As Carroll and

Buchholtz (2003, p. 185) have suggested, those who follow this

perspective ‘‘simply think that different rules apply in

business than in other realms of life.’’ Unfortunately, this

intentional amoral management approach creates a form of moral

hubris – a moral blind spot of self-deception (Arbinger, 2000)

based upon a form of egotistical ‘‘abstract greed’’ (Solomon,

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1993, p. 39). Solomon (1993, p. 84) explained in detail the

mythical profit motivation that seemingly justified this

‘‘business is business’’ Solomon, 1993, p. 84 conceit in

pursuit of abstract greed. The end product of the behavior was

a warped distortion that McLean and Elkind (2003, pp. 142–143)

report: Here’s how another former employee describes the

process: ‘‘Say you have a dog, but you need to create a duck

on the financial statements.

Fortunately, there are specific accounting rules for what

constitutes a duck: yellow feet, white covering, and orange

beak. So you take the dog and paint its feet yellow and its

fur white and you paste an orange plastic beak on its nose,

and then you say to your accountants, ‘This is a duck! Don’t

you agree that it’s a duck?’ And the accountants say, ‘Yes,

according to the rules, this is a duck.’ Everybody knows that

it’s a dog, not a duck, but that doesn’t matter because you’ve

met the rules for calling it a duck.’’ And there was the

ultimate problem. With Enron’s financial team working

feverishly to exploit the rules, there was no one willing to

say that the duck was still a dog. Because they could come up

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with plausible rationales for why a given structure was

technically valid, they believed they were on the right side

of the law. They were, in fact, proud of what they were doing.

References

Ghillyer, A. (2012). Business ethics now. New York, N.Y: McGraw-Hill.

Griffith, Creative Accounting, Unwin Hynemen Ltd, London

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Nasser, Creative financial Accounting, Prentice-Hall, London

Smith, Accounting for Growth, Century Business, London

Watts and Zimmerman, Positive Accounting Theory, Prentice Hall,

London

http://www.slideshare.net/Sakomm/creative-accounting-tutor-master

https://books.google.com/books?isbn=1930789750

http://smallbusiness.chron.com/ethical-dilemmas-accounting-

3740.html

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Internet Exercises(Page 58)

Recall: Pink’s Ice Cream Recalls All Ice Cream Flavors Except

the Coconut Non-Dairy Frozen Dessert Because of Possible

Health Risk

a. This is food related recall and it recalled products

manufactured from 1/1/14 through 12/30/2014 and the recall

was on 12/30/2014. It states that although healthy

individuals may suffer only short-term symptoms such as high

fever, severe headache, stiffness, nausea, abdominal pain

and diarrhea, listeria infection can cause miscarriages and

stillbirths among pregnant women.

I believe this recall is too late and the impact

cannot be evaluated in this case because the time period of

faulty product is too big. People might not be aware of the

reason they had those issues mentioned in the recall because

of this product.

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Module 3: Writing Assignment

b. Apart from recalling the product the company sterilized all

production surfaces and equipment, and has begun sourcing

dairy from an alternative source.

c. The company should have advertised on all media (TV, radio

and newspapers about the recall). They should have done more

research on who bought the product and paid compensation to

people who bought the product.

d. AMA calls it Statement of Ethics and AICPA calls it Code of

Ethics. The terminology does make a difference because the

goal of each document is to different.

A code of ethics usually refers to guidelines for ethical

decision making based on values embraced by the profession

or professionals involved in the decision. A code of ethics

based on values is not a behavioral code but a guideline. It

does not stipulate the behavior rather gives the values

upon which the ethical decision should be based. 

A statement is formulated by an organization (rather than a

profession) to guide the workers in their work within the

organization.

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e. Statement of Ethics has general moral values that all human

beings need to have in order to have a ethical society. AMA

establishes that its aim is to promote the highest standard

of professional ethical norms and values for its members.

AMA says that norms are to be established by individual

professional organizations and it is only providing values.

Values represent the collective conception of what

communities find desirable, important and morally proper.

Values also serve as the criteria for evaluating our own

personal actions and the actions of others.

The Code of Ethics by AICPA is the norms presented to

professionals in CPA profession. The AICPA membership

adopted the Code of Professional Conduct (the code) to

provide guidance and rules to all members in the performance

of their professional responsibilities. The code consists of

principles and rules as well as interpretations and other

guidance. The principles provide the framework for the rules

that govern the performance of their professional

responsibilities. The AICPA bylaws require that members

adhere to the rules of the code. Compliance with the rules

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depends primarily on members’ understanding and voluntary

actions; secondarily on reinforcement by peers and public

opinion; and ultimately on disciplinary proceedings, when

necessary, against members who fail to comply with the

rules. Members must be prepared to justify departures from

these rules.

f. Yes. I think AMA would benefit from promoting professional

code of conduct like the AICPA because marketing is also a

profession and marketers could use the code of conduct when

facing ethical dilemmas as code of conduct should always

supersede the statement.

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Module 3: Writing Assignment

Part 3

Can Ethics Codes Build “True” Corporate Ethics?

Hope is an essential part of human development. Man takes

action hoping things will change one day. This theory has many

proofs in our history. All inventions were made with this hope.

Yes, building an ethics code will build true

corporate ethics. It is a step in right direction. Melanie

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Lawrence, Adecco International’s global vice president for

compliance, says that employees have become more comfortable

discussing ethics and asking ethics-related questions since

the company rolled out its code and online code education in

late

2005 and early 2006. In one case, employees reported that a

high-level executive had been making sexist and ageist “jokes”

during business-related conference calls. Lawrence is

convinced that they would have remained silent before the

company implemented its education program. In addition, the

executive, who worked outside the U.S., was unaware that his

remarks were offensive and potentially discriminatory

(arguably, they

were acceptable in his home country), and he appreciated the

feedback. This example illustrates the importance of uniform

standards of conduct for global companies that operate in

countries with contrasting business cultures.

Having code of ethics makes employees think about the

code when making business decisions and considering its impact

on their behavior. I believe that building corporate ethics is

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a goal which can be accomplished by creating code of ethics.

Culture has emerged as the key factor driving the development

of effective ethics and compliance programs.10 According to

“Culture Matters: Lessons from the National Business Ethics

Survey (NBES), formal ethics and compliance programs are

critical

to developing and maintaining a strong ethical culture. The

results of the NBES particularly underscore the importance of

how organizations design their ethics and compliance programs.

In leading organizations, programs are increasingly designed

around a written code of conduct combined with one or more

education courses.

The PMI Group’s Shore, for example, created the

brand “Electric” for the company’s program. And Temple-

Inland’s Liebman developed a brand around the company’s ethics

helpline number and logo that appears on all compliance-

related materials. At PPL Corporation, Chief Compliance

Officer Kathleen Matthews developed the slogan “Be a

L.E.A.D.E.R.” (Let Ethical Awareness Determine Every

Response”) to communicate the company’s core values. Measuring

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the program’s effectiveness shows the evidence to date that

suggests that codes of conduct, code education, and other

tools are working – and will increasingly work.

Business ethics is an attempt to set out a standard by

which all of the employees of a firm can know what is expected

of them. But it is also an attempt to encourage employees,

managers, and board members to think about and make decisions

through the prism of some shared set of values. What then are

the sources from which these code is derived?

The development of the federal sentencing guidelines by

the U.S. Sentencing

Commission several years ago is one element in encouraging the

adoption of ethics programs by American companies. These

sentencing guidelines are intended to guide a company in

dealing with employees who have engaged in bribery or broken

the law under the U.S. Foreign Corrupt Practices Act. Doing so

is important especially for the management, because the

company as a whole can be punished for violations. The

sentencing guidelines, in that regard, were intended to give

court some direction in terms of when to consider the company

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itself responsible for the action of its employees. Creating

Code of Ethics is one of the guidelines to demonstrate that

company is taking action on making itself ethical.

Similarly, one of the key things that boards of

directors must do in the wake of the U.S. Federal Sentencing

Guidelines and the broader trends internationally is to

develop ways of monitoring compliance and ensuring that codes

of ethics, where they exist, are not simply a standard put on

the company’s web site, but communicated and implemented

throughout the company. One of the ways to do that is by

carrying out program audits. Complementing program audits is

the concept of directors’ ethics training. Many multinational

companies are now routinely putting on ethics training

programs for their directors.

A code of ethics outlines the values and beliefs of

an organization and ties them to an organization’s mission and

objectives. Specifically, it codifies the standards of ethical

behavior expected of all employees and the values to which all

members of an organization commit themselves to uphold when

conducting business with internal and external stakeholders.

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As such, the code of ethics becomes a yardstick by which to

measure the ethical performance of a company.

References

Taking Sides; Clashing Views in Business Ethics and Society

http://www.ifc.org/wps/wcm/connect/

3a387c8048a7e613a4bfe76060ad5911/Focus7_AntiCorruption.pdf?

MOD=AJPERES

http://www.ethics.org/files/u5/LRNImpactofCodesofConduct.pdf

https://prezi.com/rwlldw0ucnr9/can-ethics-codes-build-true-

corporate-ethics/

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