Thesis statement
Accounting and financial decision making play an important role in the success of a business organization. However, it is important to ensure that such a decision making process is done ethically to achieve positive results. It is therefore necessary that all organizations adhere to the relevant ethics as far as accounting and financial decision making are concerned. This is because accounting and financial information is used by various people to make strategic decisions that might be used in different situations. On the other hand, financial statements are supposed to be recorded and presented ethically to avoid any controversies and complications that may have a negative impact on businesses.
Summary
The paper will try to summarize the article in chapter one about Arthur Anderson and Enron. Arthur Andersen partnered with Clarence DeLany to form an accounting firm. It was called Andersen, DeLany & Co (Albrecht et al, 2010, p. 5). Later on, DeLany left the firm leading to the change of name to Arthur Andersen). In 2001, the company had operations in 84 countries employing 85,000 people. Apart from getting revenues worth $ 9.3 billion, it has audited financial results for big companies (Albrecht et al, 2010, p. 6). It closed in 2002 after auditing financial results for Enron (an energy firm).
The Company made the financial statements to appear as though Enron was performing better than was the case. Enron officials created several companies to hide hundreds of millions of dollars in debts yet Andersen officials went on to approve the accounting transactions. The company’s demise came after SEC began investigating the scandal (Albrecht et al, 2010, p. 9). Company officials wanted the documents shredded to interfere with crucial information.
How the concepts of the article relate
An accounting system is supposed to ensure that businesses analyze financial transactions in an efficient manner (Cheffers and Pakaluk, 2007, p. 13). Although the case of Andersen does not directly relate to my former organization various incidences have a borrowing from what the organization was doing in relation to accounting and financial decision making.
From the article, financial statements were made to appear as though Enron was performing better than it was. This was also the case with my former organization where financial recordings were not done comprehensively and openly. The article emphasizes that proper accounting concepts should be able to enhance the relationship between accounting and business (Albrecht et al, 2010, p. 29).
Financial statements are supposed to be recorded and presented ethically to avoid any controversies and complications that may have a negative impact on businesses (Cheffers and Pakaluk, 2007, p. 18). The practice by Andersen had a negative impact on its operations and affected Enron’s business. On the hand, it is evident that accounting information is used by various people as far as business is concerned and should be done in an ethical manner (Brealey et al, 2005, p. 12).
Because of these diverse interests, accounting is supposed to ensure that everybody is satisfied and not dejected. Any ulterior motives as far as financial reporting is concerned is bound to raise many questions (Brealey et al, 2005, p. 15). This means that accounting should be able to suit the expected standards. Moreover, there is the need to design accounting rules in such a manner as to capture and reflect the performance of a firm in question. My former organization was also involved in questionable financial accounting procedures that led to its dwindling business fortunes. This closely relates to Andersen that closed after making financial statements to appear as though Enron was performing better than it was.
Recommendations
The management might be tempted to misrepresent financial performance through the use of accounting numbers. As far as my former organization is concerned, there is need to ensure that financial accounting scandals are avoided at all costs. In this case, there is the need for the firm to see to it that accounting rules, along with the ensuing information is a true reflection of its actual performance. This means that officials should resist any temptations to try and use accounting numbers to represent financial information. As far as errors are concerned, technology should be embraced to ensure that such incidences do not recur in any case. The company is also supposed to ensure that it follows the generally accepted accounting principles.
Because accounting involves judgments, those tasked with the responsibility of preparing statements of account are supposed to ensure that it is done in line with the established assumptions and specifications. On the other hand, the company should ensure that financial accounting reflects its true performance. This is necessitated by the role that accounting plays in ensuring that organizations are successful.
Importance of ethics in accounting and financial decision-making
Ethics play an important role in accounting and financial decision-making. This is because it creates trust and consumer confidence in the company. Unethical decisions can lead to scandals and outrages that may end up affecting operations. Ethical accounting and financial decision-making create confidentiality (Brealey et al, 2005, p. 25). If financial information is accessed by unauthorized people, there is the likelihood of the firm incurring irreparable damages (Cheffers and Pakaluk, 2007, p. 38). Companies that engage in ethical accounting and financial decision-making will foster collaboration which enhances sharing of ideas that are important in business. It means that transparency will be adhered to in all cases and thereby build trust among investors.
Description of the Sarbanes-Oxley Act and its impact on accounting and financial decision-making
The Sarbanes-Oxley Act was passed by the Congress after the public complained about a rush in corporate accounting scandals. It places personal responsibility on managers to ensure that they give reliable financial reports (Albrecht et al, 2010, p. 16). On the other hand, it raises standards for all external auditors. This act gives the SEC complete oversight authority which was meant to reduce financial scandals. It also ensures that there is control over companies in relation to the issuance of financial statements. This means that a company’s internal control structure will be enhanced.
Conclusion statement
Ethical accounting and financial decision-making creates confidentiality, trust and enhance the sharing of ideas. This means that companies should resist any temptations to try and use accounting numbers to represent financial information. As far as errors are concerned, technology should be embraced to ensure that such incidences do not recur in future.
Reference List
Albrecht, W, S., Stice, K, E., Stice, D, J., & Swain, R, M. (2010). Accounting: concepts and applications. New York: Cengage learning.
Brealey, R., Myers, S., & Marcus, A. (2005). Fundamentals of cooperating finance. New York: McGraw Hill.
Cheffers, M., & Pakaluk, M. (2007). Understanding Accounting Ethics. Massachusetts: Allen David Press.