Effects of Unethical Behavior Article Analysis

ACC/291 Principles of Accounting II (AXIA)
November 12, 2012

Effects of Unethical Behavior Article Analysis
The impact of unethical accounting behavior can be devastating, often leading a company to closure or bankruptcy. Some examples of internal unethical accounting practices include under and overstatement of expenses, revenue, liabilities, and corporate assets, misuse of capital (possibly for personal gain), etc. Examples of external unethical practices would include fraud regarding trade and investment, bribery, and kickbacks, and manipulation of financial market regulations.
Enron Corporation is one of several companies who have committed unethical and illegal accounting actions. Enron started in the 1990s in Houston, Texas. This American company concentrated on the energy sector. In the highlights of Enron’s success, it has about 21,000 employees and considered the leading supplier of electricity, natural gas, communication, and paper. Enron’s perceived success was a mask for the cast schemed fraud called the “Enron Scandal” (Kadlee et. al. 2002).
Enron Corporation not only committed financial fraud but also may have been brining people for contracts on South America. Later, this accumulated, and reports started to appear regarding the fishy accounting structure of Enron and its partner in crime, Arthur Anderson (accounting firm). Consequently, Enron resulted in bankruptcy. This bankruptcy would be the world’s largest bankruptcy filing after the same audit failure of WorldCom earlier.
Before Enron filed bankruptcy, its blue chip stock prices dropped from approximately 90 dollars to 30 cents. Considering there was only a faint clue of Enron’s fraud, this uncalled-for event was the most devastating financial fraud and had cumulative losses in the billions. Once Enron and other sources released that its liabilities were understated and its assets were the money accumulated from behind-the-scene deals with its limited partnerships. The SEC, and USDJ (United States Department of Justice) declared that a thorough investigation of Enron and its accounting firms would be conducted along with governmental hearings starting January 24, 2002.
Section 404 of the Sarbanes-Oxley Act states that a company must provide proof of existence for its internal controls and affirmation for the efficacy of the internal controls. Internal controls are processes that help an organization accomplish missions and objectives of the organization. The internal control determines how the resources of the organization are used, recorded, and measured. Companies need these internal controls because it helps manage the tangible and intangible resources of the organization and prevents fraudulent activity. Such functions were created after the Sarbanes-Oxley Act of 2002. Some examples of internal controls are internal audits, asset purchases, diversification of duties, etc. Internal audits are functions that measure the effectiveness of the internal controls. Most internal controls are created by staff accountants and are immediately checked by supervisors (supervisor review). The Sarbanes-Oxley Act has made sure that companies follow Section 404, and if they do not, there may be legal consequences.
The Sarbanes-Oxley Act has had a positive influence on the financial industry and consequently has decreased the probability of another major financial disaster. As Mark Twain stated, “Always do right. This will gratify some people and astonish the rest.” This goes to show that when practicing accounting, it is best to do it correctly the first time. Enron’s unethical behavior affected the lives of millions of people. They caused people to lose their lives savings. Ethical is the best way to go. References

Kadlec, D., Weisskopf, M., Zagorin, A., Carney, J., Booth, C., baumohl, B., Kber, U., Philadelphia, D., & Rawe, J. (2002). Who's Accountable. Retrieved from University of Phoenix Library: https://ehis.ebschost.com/eds/detail?=vid-2&hid=41b53dd9-2def-46aa-8c7f55ceb166845%40sessionmgr11&bdata=JNNpdGU9zwLwxpdmU%3d#db=fsh&AN=5858010