Accounting report on:Tyco International

ABSTRACT

In this report three ethical issues in accounting choice have been discussed. The three issues are there in accounting decisions such as illegal activities in accounting choice, unethical activities in accounting choice and socially unacceptable issue in accounting choice. The illegal activities in accounting choice have been discussed with the help of Enron Scandal. The unethical activities in accounting choice have been highlighted with the help of Tyco Scandal. It is observed that ethics in accounting plays a very significant role. It has been observed that from the last few years various scandals took place in Unites states which effected shareholders and investors to drop million of dollars because of getting inaccurate and incomplete information about companies in which their funds and money was invested. Because of these scandals it becomes mandatory for companies to implement ethics in accounting (Bailey, Scott & Thomas, 2010)¹

Defining Ethics

It is observed that ethics plays a very important role in the business of the company to create trust and build consumers and employees confidence. It can be projected that when employees and directors of companies take non ethical decisions for their purpose and benefits then it can result in scandal, money scamming and ruin the careers of other employees and companies. The purpose of ethics is to follow rules and regulations in the business by employees. In accounts area the AICPA decides the rules and regulations for various number of accountants. The principle of AICPA is to make ensure that employees of companies should follow professional suggestion and judgment in their decisions.

Features of ethics in Accounting

The first feature of ethics in accounting is to create accuracy in financial and accounting matters and maintaining a faith and confidence among investors, employees, stakeholders and customers.

The second feature of ethics in accounting is to maintain the financial matters confidential and it can be expected from an ethical individual that he will not reveal any private financial information about the company to unfamiliar individual. If employees disclose the financial information of the company then it would cause great destruction to financial performance of the company (Cynthia, 2010)²

The third feature of the ethics in accounting is to create an atmosphere where employees have a chance to communicate their ideas and suggestions with members of the finance committee (Bailey, Scott & Thoma, 2010)³

Importance of ethics in accounting

It can be observed that accountants of companies are obligated to prepare accounting policies on a routine basis. Stakeholders, investors and creditors of the company have to rely on the information that is given by the accountants to make well planned decisions. The decisions involve judgment, and judgment relies on individual values and standards. The decision must be achieved on several criteria’s such as serving others, follow rules and regulation and respecting responsibility & authority (Williams & Elson, 2010)⁴

The principles of ethics are significant for the transparent and accurate implementation of the business throughout the world. It can be observed that principles of ethics assist in dominating decision related matters if it occurs throughout the business transaction. Without the use of ethics in accounting it would be very hard for financial committee to run business and building the trust among business entities and customers. For example Egoism is the self interest that is significant for all individuals. It is observed that egoism plays a very significant function in accounting because an individual in his correct mind will not rely on bank if bank misappropriate his funds (Cynthia & Moddy, 2010)⁵

It has been observed that from the last previous years various scandals took place in Unites states which effected shareholders, investors and customers to drop million of dollars because of getting incorrect and inaccurate information about companies in which their funds was invested.   Ethics in accounting helps in eliminating major problems when incomplete and inaccurate information is given to the investors and customers about the business. At last ethics in accounting assist the society by saving funds and by safeguarding the unemployment condition of the individuals (Cynthia & Moody, 2010)⁶

Ethical Considerations in Accounting Choice

Ethical considerations in accounting choice has three parts such as

It is observed by financial researchers that ethics plays a very significant role in accounting because many clients and investors of the company relies upon the information given by  accountants in various areas such as formulation of financial statements ,formulation of tax statement and financial advising. Without having ethics in accounting, accountants can misappropriate clients, investors and put stakeholders at risk. Illegal activities in accounting decisions can be seen in the well famous case of Anderson and Enron (Gaa, 2010)⁷. In this report various cases have been listed to converse the ethical considerations in accounting choice. The Enron Scandal has been listed to bring about the illegal activities in accounting decisions. The World Com scandal and Tyco scandal have been discussed to emphasize the unethical decisions in accounting activities (Bailey, Scott & Thomas, 2010)⁸

There are three ethical issues in relation to accounting such as

• Socially Unacceptable Decisions in Accounting Choice
• Illegal Decisions in Accounting Choice
• Unethical Decisions in Accounting Choice

Socially unacceptable decisions in accounting choice

The researcher had observed that the accounts of statewide referenda in distinct states to analyze the public views to predicaments of biased nature. The researcher wants to make the difference in their use of accounting strategies. This shows that the changes in accounting policies caused socially non acceptable decision in accounting. In recent time, social accounting plays a very significant role in order to find out the environmental cost in relation to creditors and stakeholders.

Nowadays it becomes relevant for the business to admit the challenges that have been placed upon them. It is observed that corporate social responsibility is used by companies to incorporate and coordinate the economic and social welfare of the society (Young & Williams, 2010)⁹

At last it is observed that to make satisfactory decisions in accounting, companies started to use ethics in accounting. Ethics plays a very important role in accounting because it gives information to clients, investors and creditors for the preparation of financial statements such as Income statement, Cash Flow Statement and Balance sheet. It can be analyzed that, in current time accountants of the company take socially non acceptable decisions for their personal benefits rather than company benefits and for this reason they play with the financial statements and show liabilities as income, devalue the performance and functioning of the company in the period of elevated growth and exaggerate the performance of the company in the period of low growth. Such activities create complexity in order to take satisfactory decisions in accounting by the administration of the company.

The researchers had observed that the Satyam was not able to apply the CSR properly. The failure behind the CSR was that the company directors and executives were not strict and the financial disaster made the people not to make any investment in Satyam shares. According to researchers misappropriation done by employees in financials statement of companies results in loss of millions of jobs which indirectly affects the individuals of the society (Cynthia, 2010)¹⁰.The loss of millions of jobs took place in United States due to Enron scandal and closure of Anderson auditing firm. The condition of unemployment and loss of jobs due to unethical behavior of employees in companies is unacceptable by the society. When Enron Scandal and closure of Anderson firm took place in United States, employees of both companies were not ready to admit the unemployment situation. At last Enron Scandal and closure of auditing firm affected the society, because individuals are part of society and plays a significant role.

The socially unacceptable decisions took place in Satyam cannot be illegal and unethical because Satyam had not done illegal activities to attain social responsibility towards the society.

It is advisable for companies to maintain the responsibility towards the society because until and unless society and individuals play an important role in achieving the profitability and viability of companies. At last illegal decisions took place in Enron scandal affected the society because of the unemployment situation.

Illegal decisions

The researcher had observed that illegal activities take place in the accounting department when the accountant of companies bring down the financial performance of companies in elevated growth period and inflate the financial performance of  companies in low growth period. Issuance of debentures in upset firms may also effects the decisions in accounting choice. It has been observed by the researcher that CEO and director of the company want to show their income less when the company records poor financial management. In Enron scandal the management of the company escaped a large portion of debenture and treated it as income. When scandal came in face of everyone then it resulted in loss of jobs of employees. It is observed that unethical behavior in accounting damage companies and careers of other employees. This can be seen in the example of Arthur Anderson because of Enron scandal other companies were not showing interest to carry on business with Arthur Anderson and because of that the company had to close its business. The researchers think that nobody wishes to have an association with unethical individuals. (Young & Williams, 2010)¹¹

There is an example of the company which made illegal practices in the accounting system.

It is observed that Enron’s company involved in business risks like fraud, the company failure arrived when it entered into conservative transactions. The obstacle faced by the company on the accounting practices and procedures because the company treated liabilities as revenues and did not treat them as recent liabilities such as trade payable. (Gaa, 2010)¹²

It is observed that the Enron Company had done unlawful activities by escaping a large amount of Company current liabilities. The company was showing liabilities as income and did not exhibit them in the financial statements. The company had taken the assistance of others for hiding a large portion of company debentures. With the assistance of LJM2 Enron company had deconsolidate its non productive assets which created yearly 30 percent income to the company. The company has entered into a partnership agreement with various business entities for hiding a large portion of debt .It is also observed that with the assistance of Whitewing Enron was capable to sell its assets of power production. The company had made a declaration to the assured investors of the Whitewing if they sell their assets and properties to Enron at a low price then they would be rewarded with ordinary shares of Enron. At last all the partnership agreements and assistance from others were mainly done by the Enron to escape a large portion of debt and to exhibit that the company was in profit.

The illegal decisions took place in Enron cannot be morally wrong and socially unacceptable because it effected the employment of itself only not effected the employment situation of other companies in industry.

It is concluded that if illegal activities occurs in accounting decisions then it would affect the functioning of companies in industry and make the investor adamant to do any kind of investment in companies. As in the case of Enron, the administration of the company had done illegal activities by escaping the large portion of debt. It can be analyzed that misappropriation of financial statements in Enron resulted in condition of unemployment for employees. It is desirable for companies not to do any type of illegal activities in financial statements because it affects the functioning of the company and reputation among the investor.

Unethical decision in accounting choice

The researchers had analyzed that accounting is called as business language. According to the American perspective accounting is defined as that provides information about the expenses in monetary terms which helps the company in decision making and planning.

With the current attack of accounting frauds, the feature of non ethical decision making in companies has moved from the deficiency of compassion for the ethical types of actions to one where employees have applied their power for personal benefit.   There are some examples of non ethical decision making at Tyco and Enron where employees of companies believed that they are over the company rules and regulations.

There is famous example of Tyco international which shows that unethical activities took place in accounting activities. Internal investigation had done by the auditors at the company which revealed that there were some accounting errors and manipulations in financial statements. But there was no regular fraud difficulty at Tyco international. The earlier CEO Mark Belnick and earlier CFO Swartz were accused because of providing loans themselves at the free rate of interest and no interest and which were never sanctioned by the board of Tyco. Apart from this, CEO and CFO were also accused because they sold shares of the company without knowing to investors which was a condition under rules of SEC. Mainly, they hide their illegal activities by providing loans to themselves at a low rate of interest and no interest without any approval from the board of director, and even they sold the stocks of the company without any intimation to investors (Nathan, 2007)¹³

It is analyzed by researchers that unethical decision in accounting choice had taken place in Tyco Company. According to researchers in Tyco International the company CEO and CFO was accountable for giving loan to themselves without any intimation to the board of Tyco (Young &Williams, 2010)¹⁴.  The scandal took place in Tyco International made other accounting and auditing firms to disrupt the lives of investors and employees. This example can show that if companies do not use ethics in accounting practices then it would result in the scam and destruction of life of investors and employees. It becomes essential for companies to follow proper financial accounting reporting in order to avert scandals.

The unethical decisions took place in Tyco cannot be illegal and morally wrong because the management of the company had not done any illegal activities like threaten and coercion to hide the claim of CFO and CEO.

It is concluded that if unethical activities took place in accounting decisions then it would affect the performance of companies in industry and make the investor rigid to do any kind of investment in companies. As in the case of Tyco International, the CEO and CFO of the company had done unethical activities by giving loan to themselves at a low rate of interest and no interest without any information to the board of Tyco.

 Conclusion

A main reason of quality of financial reporting is to make policies and procedures which are used to measure events and proceedings. It is concluded that implementation of ethics in accounts decisions results in reliability and professional judgment. The responsibility and authority of accounting policies and procedures is to ensure ethical framework to the company. The responsibility of accountants is to offer services to clients and investors in the right manner. The various problems had taken place in the company accounts such as socially unacceptable in accounting choice, illegal decision in accounting choice and unethical decisions in accounting choice. To solve these three issues the company has started to use ethics in accounting which helps clients and investors to receive transparent and accurate information about the financial statements. The Enron Company had made illegal choices in accounting decisions by hiding the details of long term liabilities and treated liabilities as income. The unethical decision in accounting choice had observed in Tyco International because the company CEO and CFO had given loan to themselves at a low rate of interest without any information to the board of Tyco. When other accounting firms get to know about illegal decisions in Enron Company they started to make a disturbance in the lives of accountants and investors of the Company. Nowadays these scandals and frauds are very common because managers, accountants and employees of the company want to have their own benefits rather than company benefits. It can be solved by proper use of ethics in accounting to ensure that all managers, accountants and employees will follow the code of conduct. Employees should maintain secrecy of private information which is relevant to the company. At last ethical principles become essential to conduct the business of the company in the true and fair manner. If the companies do not use the ethics in accounting then it would result in scamming and money stealing. This thing has been noticed in the case of WorldCom and Tyco Company which results in unethical decisions in accounting.

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