Fraudulent Operations by Enron and Worlcom

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Ethics and Financial Reporting

Role of ethics

In financial reporting, ethics assumes a key role. Shareholders must feel confident enough to trust a company with their money. Financial reporting is the representation of all information about a company's historical, current and projected health. In most cases, shareholders and investors depend on the financial statements available to make educated and informed decisions. To support entities maintain financial reporting and adhere to business regulations, shareholders tend to trust the current firms designed to supervise various aspects of the accounting field. The basic organizations include the Financial Accounting Standards Board (FASB), Securities and Exchange Committee (SEC) and the Public Company Accounting Oversight Board (PCAOB). In collaboration, these bodies guarantee financial reporting is reliable, available and fair to all investors.

The usefulness of ethics in financial reporting and business is to promote investor and public confidence in businesses. In the absence of a powerful ethical code and adherence to the code, people will be uncertain of their investment's security. Professionals in the accounting field must have a strong moral and ethical reasoning as their decisions about financial reporting could have significant impacts on individuals, the corporation and the country. In the business world, ethics is more than mere issues about accounting.

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The numerous recent scandals relating to accounting and reporting scams started at the CEO level and penetrated down the hierarchy into financial records.

Before the Sarbanes-Oxley Act, numerous financial breaches like WorldCom, Adelphia Communications, and Enron plagued the U.S. public, adversely affecting the nation's economic health. Mostly, these scams accrued from unethical accounting behaviors conducted at the top level of the corporations but executed in the financial reporting practices of public accounting organizations.

Enron and other scandals

To discuss ethics and financial reporting in a better way, we must look at some of the greatest scandals in a recent decade: the WorldCom and Enron. In the corporate world, Enron was a huge symbol of the widespread economic problem because its growth and collapse were unique. Formed in 19985, Enron was under the leadership of Ken Lay. In 1990, the company hired Andy Fastow and Jeffrey Skilling. In 2001, Enron was listed as one of Fortune's best admired firms, sending its stock prices up to at least $90 per share. Next was a $1 billion write-off that marked the onset of an SEC investigation. Soon, Enron was declared bankrupt, and the share price dropped….....

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