Unethical Accounting Practice
One of the key unethical accounting practices used by Tyco International is the distribution and reporting of incorrect bonuses and compensation for the company’s leaders. Thus, in the early 2000s, Tyco leaders, including CEO Dennis Kozlowski, were charged with fraud, including tax evasion and receiving unauthorized or illegal bonuses (Fraedrich and Ferrell, 2021). Additionally, the company used special investment accounts to transfer money between subsidiaries to cover its operating expenses. This practice allowed them to hedge against obvious losses and profits.
Affected Stakeholders
The two key stakeholders impacted by Tyco’s unethical practices are the company’s shareholders and employees. Thus, shareholders suffered from a drop in share price and a loss of trust in the company, while employees may have faced unfavorable working conditions and a loss of motivation due to the unlawful enrichment of the leadership (Brooks and Dunn, 2020). Investors may be significantly dissatisfied with unethical practices as they can lead to the loss of profits.
Fundamental Accounting Ethics Principles
Among the five key accounting ethics principles, Tyco International violated integrity, professional competence, and objectivity. Thus, Tyco leaders deceived shareholders by hiding the actual amounts of their compensation and awarding illegal bonuses (Taylor and Williams, 2020). Furthermore, they did not comply with laws and regulations related to accounting and taxation, which is indicative of incompetence (Jennings, 2021). Finally, leaders allowed decisions to be made based on personal interests, which contradicts the principle of objectivity.
Recommendations
To prevent such situations for other companies, it is important to recommend strengthening corporate governance and focusing on transparency and disclosure of information. By implementing strict procedures and controls at all levels of leadership, including independent board members who are able to oppose unethical practices, leaders can ensure ethical behaviors at all levels (Sturm, Clevenger and MacGregor, 2021). Furthermore, by guaranteeing full and timely disclosure of financial information, including executive compensation, it is possible to ensure transparency and trust from shareholders and employees.
Reference List
Brooks, L. J. and Dunn, P. (2020) Business and Professional Ethics. New York, NY: Cengage Learning.
Fraedrich, J. and Ferrell, O. C. (2021) Business Ethics: Ethical Decision Making and Cases. New York, NY: Cengage Learning.
Jennings, M. M. (2021) Business: Its Legal, Ethical, and Global Environment. New York, NY: Cengage Learning.
Sturm, P., Clevenger, M. R. and MacGregor, C. J. (2021) Partnership Motives and Ethics in Corporate Investment in Higher Education. New York, NY: IGI Global.
Taylor, E. Z. and Williams, P. (eds.) (2020) The Routledge Handbook of Accounting Ethics. New York, NY: Taylor & Francis.