To begin with, ethical conduct can well be described as a behavior that is generally accepted on the bases of morality. So to speak, morality judges issues on the bases of right and wrong. In this sense, if one deviates from what the code of ethics defines as right, then, he or she has done what is morally wrong and in simple terms unethical. Such behaviors that are not morally accepted or rather morally right are known as unethical and immoral behaviors. Ethical conduct in this case is not limited to the behavior of an individual but in the larger perspective it covers organizational behavior.
From this point of view, for an organization or corporation that serves the public, it is expected of it to adapt a relational as well as managerial conduct in carrying out its operations that is morally accepted. In this connection, the management should possess traits that display a moral uprightness. It is therefore on the bases of morality that the rules of the American Institute of Certified Public Accountant’s (AICPA) Code of Professional Conduct were formulated. The formulation of AICPA was aimed at ensuring that the CPA’s carry out their mandated public interest in an ethical manner (Campbell & Houghton, 2005). In line with this, AICPA ensures that there are set ethics, standards and process of interpreting them along with ensuring that adherence to the rules is done.
In addition, AICPA has a disciplinary process that is geared at ensuring that conformity to the rules is established. It is important at this point to point out on some of the ethical behaviors that AICPA has brought into view. Firstly, AICPA Code of Professional Conduct requires that in carrying out professional responsibility, a sensitive professional and moral judgment of the activities is observed by the members. Secondly, members are accorded to obligatory act to serve the public interest in order to win their trust, as well as proving a commitment to professionalism. Thirdly, public confidence should be maintained and broadened by ensuring that responsibilities are carried out with the highest sense of integrity.
While discharging the professional responsibilities, one is required to avoid conflicts of interest. This is mandatory in auditing and other attestation services. In the same line of thought, it is called for the professionals to ensure that both technical and ethical standards are observed (Campbell & Houghton, 2005). This should be coupled with competency, and quality services to the best of the professional’s ability. Again, the principles of the code of professional conduct are made use of in determining the nature and the services that are provided by an organization.
From this point of view, it is prerequisite to bring the Enron Scandal in the light of the AICPA code of professional conduct. Enron Scandal is one that can be termed as a corporate scandal. A corporate scandal can be described as a scandal that involves contention of corrupt activities by the people acting within or on behalf of the corporation. In this case, Enron is a merger of the Houston Natural Gas and Interworth, both natural gas pipeline companies. Referring to a brief overview of its background for convenience, it was founded by Kenneth Lay back in 1985 (Sterling, 2002). Initiation of electricity sale at market price followed in the 1990s. Shortly after, the legislation that aimed at deregulating the sale of natural gas was initiated perpetuating way for Enron to sell energy at higher prices.
This led to the thriving of Enron in the United States of America. Following this point was the deprecation of price explosive nature by the producers and the local governments. However, the strong lobbying on the part of Enron maintained the system in place. In regard to this, Enron became the largest merchant natural gas in North America with a net income together with earnings before interest and taxes at approximately $122 million (Sterling, 2002). There was further growth made possible by the creation of the Enron online trading model that extended its capability to both manage and negotiate the trading business. In its quest for more growth and development, a diversified strategy was adopted in 2001 (Campbell & Houghton, 2005).
The strategy placed Enron as a multinational in the sense that it owned and at the same time operated gas pipelines, broadband assets, electricity plants, water plants internationally and pulp and paper plants. Subsequently, the company was rated as the most innovative company in America as its stock increased at a remarkable rate. Though from an outlook the company seems to have been growing, this was not the truth owing to the fact that management fraud was unsurpassed. It happened that there was no transparency on the financial statements. This is to suggest that, clear cut details in the operations and finances especially with analysts and shareholders were not taken into account (Sterling, 2002, p.111).
The complex model of the corporation limited the scope of accounting. As a consequence, limited accounts were applied in management of earnings and modification of the balance sheet. This displayed or rather portrayed unrealistic performance of the company (Houston News, 2002). Generally, Enron worked behind ensuring that the reported income and cash flow was kept so high, the values of the assets inflated and in the larger perspective kept liabilities off the books (Sterling, 2002, p.113). In order to carry out the corrupt deals without being discovered, Enron kept a market to market accounting policy under the leadership of Jeffrey Skilling and sophisticated risk management tools with high risk accounting practices.
Despite the fact that this was well known by the board of directors, they allowed it. Additionally, Enron used executive compensation using stock options and again it employed the use of special purpose entities to hide its debts. Accordingly, Enron used hyper inflated and distorted revenues to portray an impression on novelty, high growth, and magnificent business performance. Moreover, Enron’s auditor firm, Arthur Andersen employed inattentive standards of auditing owing to a conflict of interest over the consulting fee made by Enron. This was followed by prosecution of which the verdict was rejected by the justices (Greenhouse, 2005).
From the perspective of the AICPA, this was a management fraud and it was in actual fact unethical conduct. As it is stipulated by the AICPA code of professional conduct, it was wrong for the management to use distorted financial statements to imply what was not right. This in reality broke code of ethics that call for moral judgment in the kind of activities that are carried out, provided by the first article of code of professional conduct. It is required that there should be absolute application of high integrity of which Enron violated by giving unrealistic balance sheet statements along with overstated revenues and income.
Audit firm, Arthur Andersen deviated fro AICPA code of professional conduct by applying reckless audit standards due to conflict of interest. This violated the provision of article four of the code of professional conduct. It was unethical and wrong indeed to use special purpose entity and derivatives to hide the debts of the company while it was against the rules of AICPA. It was not professionally ethical for Enron to act in way that did not serve the public interest by using lies to portray a spectacular performance of the company while it was not in reality (Sterling, 2002, p.113).
The results of Enron Scandal remain to be one of the world’s corporate scandals or rather a management fraud that affected all spheres the society. It affected the shareholders, the prospect investors and revealed how unethical conduct can ruin an economy as it is revealed that the portrayed image of the company was a corrupt deal by management resulting to great losses to the employees, shareholders and in general all the stakeholders.
What Our Customers Say