ATHARVA INSTITUTE OF MANAGEMENT STUDIES

PRESENTATION ON
Ethics in Business Accounting
PRESENTED BY
 INTRODUCTION

 DEFINITION

 WHY TO STUDY ETHICS?

EVOLUTION OF ETHICS
 BEFORE 1960’s

 IN 1960’s

 IN 1970’s

 IN 1980’s

 IN 1990’s

 IN 21st CENTURY
 BENEFITS OF ETHICS

 ETHICS CONTRIBUTES TO EMPLOYEE

COMMITEMENT

 IT CONTRIBUTES TO INVESTOR LOYALTY

 IT CONTRIBUTES TO CUSTOMER SATISFACTION

 IT CONTRIBUTES TO PROFITS
 ETHICAL ISSUES IN BUSINESS
 HONESTY AND FAIRNESS

 CONFLICTS OF INTERESTS

 FRAUD

 DISCRIMINATION

 INFORMATION TECHNOLOGY
HOW TO RECOGNISE ETHICAL ISSUES
 SPECIFIC BEHAVIOUR

 SPECIFIC POLICIES

 OPENESS IN ETHICAL DECISION MAKING

ETHICAL LEVEL AS DIMENSION OF SOCIAL
RESPONSIBILITY
 ECONOMIC LEVEL

 ETHICAL LEVEL

 LEGAL LEVEL

 PHILANTROPIC LEVEL
ACCOUNTING AS PART OF
EVERYDAY LIFE
 Is one discipline of study that all people regardless
of job position should have some knowledge of…
 How to read your bank statement?
 Know your financial gains and losses… Your income!
 What are your tax dues?
 Itsuseful in people’s everyday lives.
 Companies must have reliable financial statements
for both internal and external users.

9
IMPORTANCE OF ETHICS IN
ACCOUNTING
FRAUD

Fraud is an intentional deception, misappropriation

of a company’s assets, or manipulation of its financial data to
advantage of perpetrator.

Symptoms can include:

•Key executives appearing to be living beyond their means.
•Key executives have close associations with suppliers.
•Company uses several different banks, none sees full financial picture. 10

•One or two individuals dominate the company.

 ETHICS IN ACCOUNTING
 DEFINATION

 BENEFITS

 ETHICAL CRISIS MANAGEMENT AND RECOVERY

 RISK AND REQUIREMENT

 AUDITING PROCESS
CASE STUDY ON
 ENRON’S INTRODUCTION
 Enron Corporation was an American energy company based in Houston,
Texas.

 Enron employed around 21,000 people and was one of the world's leading
electricity, natural gas, pulp and paper, and communications companies,
with claimed revenues of $111 billion in 2000.

 Fortune named Enron "America's Most Innovative Company" for 6

consecutive years.

 It was formed in 1985 when Houston Natural Gas merged with InterNorth.

 After several years of international and domestic expansion involving

complicated deals and contracts, Enron was billions of dollars into debt.

 All of this debt was concealed from shareholders through partnerships with
other companies, fraudulent accounting, and illegal loans.
ENRON

What Went Wrong?

 HOW DID THE COLLAPSE BEGIN?
 Energy companies lobbied congress in the 1980s for
deregulation of the energy business

 Energy policy was changed and Washington lifted

controls on who could produce energy and how it was
sold

 Jeff Skilling took and aggressive approach to expand

Enron by trading futures in gas contracts
 EARLY 2000
 Enron took advantage of the dot.com boom and traded
internet bandwidth

 The value of Enron’s online transactions was huge ($880

billion)

 The problem was Enron wasn’t making money on many

of their online trades because they made the market very
efficient
FUZZY
NUMBERS o Enron began tweaking the
numbers in their financial
statements with accounting
techniques to hide their losses
 Enron created partnerships, and
then passed the assets (losses) to
these partnerships which
eliminated the losses from their
balance sheets
 Andrew Fastow (Chief Finance
Officer) created the partnerships
 Condor and Raptor were two
major partnerships
WHY WASN’T ENRON CAUGHT EARLIER?
 Throughout all of this, Enron
and its key members were
making political
contributions to the white
house and congress.
 Kenneth Lay donated
$100,000 to President Bush
in 2000, and in 2001 Bush
invited Lay to become an
advisor to his transition
team.
 ACCOUNTING SCANDAL OF 2001
PEAK AND DECLINE OF STOCK PRICE
 December 2001, Enron
filed for chapter 11
bankruptcy
 It’s share price had
collapsed from about
$95 to under $1.
 dissolution of
Arthur Andersen
ACCOUNTING PRACTICES
 CREATED OFFSORE ENTITIES AND UNITS

 MANIPULATION BY CFO ANDREW FASTOW

 ADOPTED MARK TO MARKET POLICY

POST-BANKRUPTCY
 Spun off its domestic pipeline companies as Cross
Country Energy.

 Sold its last business, Prisma Energy, in 2006.

 In early 2007, it changed its name to Enron Creditors

Recovery Corporation.
CONCLUSION
 Costs of legal action taken against perpetrators.
 Costs of reduced productivity.
 Increased unemployment as companies are forced to
downsize or go out of business.
 Economic loss to organization, hence to society
 Ethics cannot be fragmented.
 Company governance must integrate the active participation
of all stakeholders.
THANK YOU