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Free «Questionable Accounting Practices» Essay Sample

Broadly, all business activities fall under (a.) laws regulating competition, (b.) consumer protection laws, (c.) safety and equity promotion laws, and (d.) nature and environmental protection laws. Businesses have their social responsibilities. Competition among businesses for profits and customers impacts this responsibility. Intense competition for survival of their companies drives managers to resort to unhealthy and unacceptable practices, such as sustained price wars that lead to quality questions. Antitrust laws aim at distinguishing competitions that are beneficial for the consumer. Corporate competitions go overboard when they indulge in illegal activities, such as theft of patents and intellectual property, intimidation, impersonation, etc. Laws mandate companies to protect consumers by providing correct information on their services, products, and safety standards. Avoidance of inequitable pricing practices and prevention of monopolies are encouraged. Pure food and drug act mandates industries to protect senior citizens and young consumers. Protection of the rights of women, minorities, physically challenged persons, vulnerable consumers, workers, and elders are mandated by laws. Title VII of the Civil Rights Act mandates protection of employees from discrimination against caste, color, religion, sex, or nationality. Equal pay for equal work to women and men is mandated by the equal pay act of 1963. The occupation safety and health act is a major legislation passed by Congress that mandates health and safety to workers. Environmental Protection Agency mandates companies to protect the environment by incorporating pollution control mechanisms to reduce toxic wastes in water and air. In spite of all these legislation, agencies, and stipulations that are in place, the results are not very satisfactory or encouraging in many subject areas (O.C. Ferrell)



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Generally speaking, Arthur Anderson case may find place in (a.) laws regulating competition and (b.) consumer protection laws. By and large Anderson case is related to trust and ethics. The firm was found wanting in these qualities and the result was its self-inflicted destruction. The firm failed in its founder, Arthur Anderson’s avowed motto of “Think straight, talk straight” in respect of Enron’s auditing. However, the indictment charges against the firm was for committing offenses on two counts, namely (a.) withholding a record, or a document in an official proceeding and (b.) resorting to alter, destroy, mutilate, or conceal an object with intent to impair the object’s availability for use in an official proceeding (Wikipedia, 2012)

How the Issues with the Arthur Anderson Case May Have Played Out Differently If the Sarbanes-Oxley Act Had Been Enacted In 1999

The Sarbanes-Oxley Act of 2002 mirrored remedy for future cases like that of Enron’s. It sought future solutions for every company’s perceived failure of governance. The principal provisions of Sarbanes-Oxley Act matched answers to Enron’s failure. It clearly spelt out that Enron’s failure was due to lack of oversight on the part of its board, conflicts of interest on the part of its senior managers, and failure of its auditors. The Act imposed rules aiming to enhance independence of auditors and directors, and to streamline managerial behavior in protecting interests of shareholders. The Sarbanes-Oxley Act confirmed beyond doubt that corporations exist to promote the interest of their shareholders.

Had this Act been in force in 1999, when Enron was still going strong, the various stipulations of this Act would have served as deterrents against what caused Enron’s demise. The senior managers of Enron would have exercised abundant caution not to indulge in conflicts of interest, the board of Enron would have kept their eyes open, and the auditor-adviser, Anderson would have fulfilled its professional responsibilities of auditing Enron’s financial statements without bias and reported facts to Enron’s Board.

Elements of the Framework for Ethical Decision Making in Business that Played the Biggest Role in the Arthur Anderson Case

Ethics is the rational study of the principles that underlie the behavior and actions of men and women. In our context, this philosophy refers to the governing rules and standards of conduct, Arthur Anderson should have followed in their professional capacity as auditors and consultants of Enron. Once the firm forsook the accepted rules and practices, it faced unfamiliar situations that it faced never before. Ethics in business require both individuals and business to comply with healthy moral principles. Morally, in the case of Enron, Anderson was privy to wrong doing because it compromised the established legal and implicit rules, principles, standards, and values to cooperate with Enron in their efforts to show false profit in their balance sheet. Enron was continuously breaking the rules of US Generally Accepted Accounting Principles (US GAAP), in running the Special Purpose Entities (SPE) with the tacit knowledge of Anderson. This trade-off on the part of Anderson harmed individuals and society. Moral issues and organizational learning process play major roles in ethical decision making. It involves ethical issue intensity, individual factors, organizational factors, opportunity, and business ethics evaluations and intentions. Anderson threw away all these ethical components while dealing with Enron

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How the Situations at Arthur Anderson May Have Played Out Differently If Their Senior Management Had Displayed the Habits of Strong Ethical Leaders

As explained earlier, Anderson’s managers in Enron were responsible for auditing as well as consulting. But they did not exercise these responsibilities with the mandated independence. It earned millions of dollars for organizing the Special Purpose Entities (SPE), which proved costly to Enron. Enron’s legal advisors also were involved in these operations, a fact known to Anderson. Thousands of these SPEs were organized in non-compliance with the rules of US GAAP. Another fact that cast doubt on Anderson’ audit independence was that most of Enron’s chief financial officers, internal auditors, and finance controllers were former Anderson executives.

Had Anderson’s senior managers exercised principled financial reporting and corporate ethics, the cases of Enron as well as Anderson would have been different today. Had the Senior Management of Anderson exercised the principles accounting as put forth in Sarbanes-Oxley act, the situation at Arthur Anderson would have been a different story. Had the senior management at Anderson been accountable and responsible for the risks associated with the ethical conduct of their managers at Enron, the firm would have been still alive and shining among the galaxy of world’s top five auditing firms. Also, Enron and Anderson would have been alive today (Simon Deakikn, 2003).


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