Introduction
The recent series of corporate failures have lead to questioning of the responsibility of different stakeholders in upholding standards that are set to ensure that the best interests of the organization are met. It has been widely argued that the management bears the highest responsibility in ensuring that organizations are managed in the manner that is consistent to the overall organization objectives (Antony & Robert, 2011). However other parties such as the independent auditors, legal advisors, business partners, and business advisors such as banks also have a significant part to play in ensuring ethical running of organizations (Kingsley, 2009).
Auditors may act as whistle blowers in the case where they detect fraud whereas other parties such have a role to play in ensuring that the organization they are they are relating with is being managed in the best way (Jonathan, 2000). Enron corporation failure brought about major changes in the way organizations are governed including enforcements of corporate governance among the companies’ management practices.
As such the various professional bodies have come up with ethics and codes of conduct that stipulate how the respective practitioners should conduct themselves in the course of their service delivery. This paper reviews the relevance of the Institution of management Accountants ethical principles to the Enron’s scandal.
Enron Corporation
Enron was a gas pipeline company that started operations in the United States of America. The company had recorded tremendous growth and in a short period it become the largest energy company in the world. This growth was however attained through management’s deliberate manipulation of financial statements that made the company appear profitable and financially healthy. These management practices largely went unquestioned and even the auditors certified the financial statements as true reflection of the financial state of affairs of the company.
Institute of Management Accountants ethical principles
The IMA has come up with a set of accounting ethical principles that are to be observed by the practitioners to ensure that their conduct is ethical. Ethical in general terms deals with the human conduct and behavior that is regarded as morally good or bad (Vance, 2003). The decision maker is therefore expected to predict the outcome of the decision with a degree of accuracy and choose the course of action that is favorable to all stakeholders.
Professional ethics in accounting states that the accounting practitioners have an obligation to the public, their profession, and the organization to maintain the highest standards of ethical conduct (Barry, 2003). These ethical conducts relate to issues of confidentiality, professionalism, conflict of interest, and reporting.
The ethical conduct in relation to professionalism state that the practitioners have the responsibility to maintain high level of competence. It also requires them to comply with the set of regulations and provide complete and clear reports from relevant information. This ethical principle would be relevant in the Enron Corporation since the management would be compelled to practice high level of competence in their management practice.
The CEO condoned many practices that are ethically regarded as incompetent for any manger to do. The managers often manipulated financial statement to report profits whereas the company was making losses. Adherence to these ethical principles would ensure that the company’s management act in a manner that is consistent with the professional guidelines of the accounting practice.
Ethical conduct that relates to confidentiality requires the practitioners to refrain from disclosing any confidential information that relates to the company (Barry, 2003). It also requires the practitioners to refrain from using confidential information about the company for unethical benefits either directly or indirectly (Wild, Supranyam, & Hasley, 2007). This ethical principle once applied by the CEO would prevent him from using the confidential information he had to refrain from drawing cash he had in cash from the credit facility that the board had approved him. In the 12 months preceding the company’s collapse, The CEO had withdrawn up to $77 in credit and repaid it using the company’s shares while knowing that the company was going to down.
Ethical conduct that relates to conflict of interest, require the practitioners to refrain from activities that would subvert the achievements of organizational goals (Barry, 2003). This ethical conduct would govern the way Enron Corporation to avoid endorsing Fastow’s SPE partnership. These partnerships were set so as to take care of Enron’s debts while the company itself took record over the profits. This was a conflict of interest since the benefits were being reported in the interest of the top management. This ethical conduct would ensure that the company’s interests prevail over the individual interests of the management.
The ethical conduct relating to reporting requires management to fully disclose all the relevant information to the concerned parties. This requirement compels the management to objectively analyze the company’s information and give a true and fair representation of state of affairs of the company (Pauline & Sidney, 2007). This requirement was contravened by Enron management. The management had erroneously but intentionally reported profits of $975 million yet the company approved a top management bonuses amounting to $750 million. This was achieved through erroneous reporting systems that they had employed in the financial reporting. These practices led to the ultimate collapse of the company.
Conclusion
The companies’ management ought to inculcate ethical practices in their operations. This would ensure that the operations are carried out in such a way that the organization’s best interests are given the first priority. This would also ensure that the management carry out their duties in a responsible manner that would result in the best corporate governance practices as well as foster integrity among management.
References
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Barry, E. L. (2003). Management Accounting Demystified. New York: McGraw Hill.
Jonathan, I. K. (2000). Corporate Failure by Design: Why Organizations are Built to Fail. Westport: Quorum Books.
Kingsley, O. A. (2009). Predicting Corporate Failure: Some Empirical Evidence from the UK. Benchmarking: An International Journal , 432-444.
Pauline, W., & Sidney, J. G. (2007). International Financial Analysis and Comparative Corporative Performance. Journal of International Financial Management and Accounting , 2nd volume (Issue No. 2), 111-130.
Vance, D. E. (2003). Financial Analysis & Decision Making: Tools and Techniques to Solve Management Problems and Make Effective Business Decisions. New York: McGraw HIll.
Wild, J. J., Supranyam, K. R., & Hasley, R. B. (2007). Financial Statement Analysis (19th Edition ed.). New York: Mc Graw Hill.