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Running Head: ACCOUNTING 7

Review of Accounting Ethics

Introduction

The accounting practices improve the image of the organizations because it helps the organizations to make the effective relationship with the entire stakeholders such as general public, employees and customers. The same situation is also faced by the organization such as Olympus Corporation and the accounting ethical breach has also reduced the image of the organization between its entire stakeholders. For accomplishing the objectives of this assignment, the selected article is related to the federal bureau of investigation (FBI) over the accounting fraud at Olympus Corporation. On the other hand, this paper would also provide the answer of the some questions, which would help to develop understandings about the ethical behavior and related environment.

Answer 1:

In the context of the accounting ethical work practices, it could be stated that the corporate ethical breaches were increased because of the less effective accounting practices. In the past, the less effective accounting environment has also increased the distance between the organizations and stakeholders (U.S. Attorney’s Office., 2013). But, the recent changes in the accounting practices for example GAAP, which forces the business organization to follow the ethical accounting practices, which helps the shareholders to know about the wealth of their organization, is going in the right direction or not (PricewaterhouseCoopers LLP., 2013). On the other hand, the regulatory environment is the main term, which is more conductive for the ethical behavior. It is because that the current business environment provides the guidance and assistance to the management people of the organizations by which they could be able to improve the image of the organization and also provides the chances to the organization for getting the profits from the market (Grover & Smith, 2012). Simultaneously, this kind of the environment enhances the capabilities and capacities of the organization by which they could be able to make the most effective and sustainable relationship with the entire stakeholders that also improve the fair distribution of profits and get the competitive advantages in the competitive market without any problem.

The regulatory environment related to accounting and related practices helps the organization to ensure the investment because it forces the organizations to implement the fair accounting practice and disclose the entire data and information about the organization without making any change (U.S. Attorney’s Office., 2013). Therefore, I could state that I personally believe that the current business and regulatory environment are effective and conductive terms this kind of environment restricts those business organizations, which want to hide the real information about the financial position of the organizations. Answer 2:

In the context of Olympus, it is a manufacturer of cameras and medical devices. It is listed on Tokyo Stock ExChange. Olympus also holds several subsidiaries along with the companies in different market of different countries and organization makes mergers and acquisitions. From 1995 to 2004, Mr. Chan was appointed by two different banks. For one bank, Chan worked as a relationship manager to Olympus and bank-2 got millions of dollars as a loan for completing special purpose for Olympus (Grover & Smith, 2012). But, Olympus has not disclosed this matter to shareholders, investors, and auditor because Tsuyoshi Kikukawa was engaged with Chan in illegal activities.

In 2010, the entities related to Olympus have transferred millions of dollars in the organization of Chan to purchase securities and bounds and he also transferred these assets to the organization to improve the share value of the organization in the market. Chan has not disclosed the information about the accounting ethical breach of organization and Tsuyoshi Kikukawa anywhere and also not disclosed this information in the financial statements of the company (U.S. Attorney’s Office., 2013). Before the disclosure of this fraud in the market, Chan imposed huge pressure over the organization to pay $10,000,000 for the profits of the organization and the organization paid him this total amount, which reduced the profitability of the organization and also reduced the profit margin of the active and inactive shareholders that reduced the interest of shareholders in the organization. It also caused the negative impacts over the financial stability of the organization in the market.

Answer 3:

This organizational ethical issue was disclosed in 2011 by Michael Woodford, who was appointed as a chief executive of Olympus Corporation for its international optical equipment manufacturing. But, due to his different kind of the management, the board members of the organization had recalled the rights of Woodford and due to this; he gave resign and also pointed out about the unethical accounting practices of the organization in the market. It is because that three Olympus’ executives such as Tsuyoshi Kikukawa, Hisashi Mori and its auditor Mr. Hideo Yamada did not work ethically and court founded them guilty because their unethical accounting practices inflated the total net worth of the organization in its financial statements till 2011 (Grover & Smith, 2012).

The organization of Olympus had not failed to create an ethical environment because its auditor and top management people were also engaged in the unethical accounting practices. On the other hand, the top management executives of the organization provide the fund to auditors to hide the real information of the organization to mislead the investors. As a result, the organization did not be able to formulate the ethical working policies and practices, which did not create and develop the ethical working environment and due to this, the organization faced the huge financial loss.

Answer 4:

The unethical accounting practices in the organization created the conflict between the executives and the decision makers of the organization after the appointment of the Michael Woodford. Tsuyoshi Kikukawa diverted the thoughts of the entire board of directors and due to this, the auditor of the organization helped the organization to get huge fund from the banks and other financial institutions (U.S. Attorney’s Office., 2013). On the other hand, Chan had also purchased the securities and assets of the organization from market and also provided this to the organization, which helped its executives to show the improvement in the financial statement in last five financial years to 2011. The unethical working practices of the top executives of the organization also violated the accounting guideline of GAAP (PricewaterhouseCoopers LLP., 2013).

This accounting fraud also created the negative impacts over the organization. The organization had not gained the growth in its financial stability. As a result, the revenues of the organization after mergers in the international market had gone into the negative direction that created a huge financial loss to the direct investors (Grover & Smith, 2012). So, this situation also raised the legal cases against the organization and the court has given the decision to penalize the executives and auditor because of their legal obligations and the misrepresentation of the financial information to investors and existing shareholders.

Answer 5:

For improving the financial reporting within the organization, I would like to employ the following measures to prevent the organization from ethical breach:

· The organization should use the document management to ensure the proper financial reporting. The organization should implement this system by taking the help of some computing software, which improve the financial reporting system of the organization (Warren, Reeve & Duchac, 2011).

· The organization should apply a balance and checks systems, which would distribute the financial reporting responsibilities between entire financial officers that would also ensure that no one person could be able to control the entire financial transaction of the organization (Mard, Hitchner & Hyden, 2010).

· The financial management should also reconcile the financial accounts of the organization in every month by making the internal audit within the organization and for this activity, the organization should take the help of external and independent financial experts and auditors (Warren, Reeve & Duchac, 2011).

· The decision makers of the organization should prepare every financial or fiscal policy in writing by which the entire financial department could be able to employ the new guideline for cash disbursements, expense, and cash management effectively (Mard, Hitchner & Hyden, 2010). These terms will help the organization in the future to reduce the possible route of the financial fraud related to of accounting in the upcoming future.

Conclusion

On the basis of the above discussion, it could be stated that the changes in the existing financial reporting system could help the organization to create the ethical environment within the organization. Hence, the organization is able to could protect it from any kind of the financial fraud in the upcoming future.

References

Grover, R. & Smith, E.G. (2012). Banker sent to New York to face charges in Olympus fraud case. Retrieved from http://articles.chicagotribune.com/2012-12-21/business/sns-rt-us-olympus-arrest-courtbre8bk15l-20121221_1_olympus-or-entities-sg-bond-plus-fund-chan-at-sg-bond

Mard, M.J., Hitchner, J.R. & Hyden, S.D. (2010). Valuation for Financial Reporting: Fair Value, Business Combinations, Intangible Assets, Goodwill and Impairment Analysis. USA: John Wiley & Sons.

PricewaterhouseCoopers LLP. (2013). IFRS and US GAAP: similarities and differences. Retrieved from http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences.jhtml

U.S. Attorney’s Office. (2013). Former Bank Executive Pleads Guilty in Connection with Accounting Fraud at Olympus Corporation. Retrieved from http://www.fbi.gov/newyork/press-releases/2013/former-bank-executive-pleads-guilty-in-connection-with-accounting-fraud-at-olympus-corporation

Warren, C.S., Reeve, J.M. & Duchac, J.E. (2011). Corporate Financial Accounting. Canada: Cengage Learning.