Ethics Case

1. Society as a whole is definitely harmed when business leaders and

executives commit fraud. Living in a capitalist society means there is risk with
investment. We live in merica! where everyone has the choice to work hard to
make a living and spend their money as they please. "owever! working hard
does not mean cheating. #his nation was founded on Christian principles and
moral behavior that has kept the capitalist market running and! with a few
exceptions! running at an extremely high profitability rate. #herefore! when
executives decide to cheat and lie their way to a lofty personal income and
bloated stock prices! the merican investors lose faith in the capitalist market. s
a result! investors withhold their money and there is less money in the economy.
#his in turn means less money for
salaries and ultimately people get
laid off from their $obs which bring
about a recession such as the one
we are experiencing now. #he Click
%raud &ndex has only been reporting
and monitoring fraud data for the
last three years. Even after three
years of data research it is apparent
that fraud has been steadily on the rise according to this graph. Were there fraud
data by 'uarter prior to the Enron and WorldCom scandals! & would suggest there
would be a positive correlation of high investments to a relatively low fraud
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percentage. Since the large scale losses incurred by Enron and WorldCom
investors! investors should be more cautious when it comes to investing large
amounts of money in one corporation. #hanks to a couple of corrupt executives
that made the nightly news! Wall Street has changed and possibly even brought
about a recession due to investors lack of faith in large businesses.
(. )evenue expenses are expenses that must be made so the company
can operate and*or perform a service within a year! i.e. salaries! gas for company
vehicles! line costs! etc. Capital expenditures are long term investments that
allow for services to be performed longer than a year! such as property! plant!
and e'uipment. #herefore! expenses can be capitali+ed or expensed. When
WorldCom had to pay line costs in order to operate on a yearly basis! rather than
expensing the process! they capitali+ed on them which amorti+ed the costs over
several years. Capitali+ed expenditures show up on the balance sheet whereas
revenue expenditures are placed on the income statement. ,ositioning capital
expenditures on the balance sheet allows them to be listed as long term assets
rather than revenue expenditures which detract from net income. Without
revenue expenditures representing true expenses of the daily necessities that
come with running a business! the income statement is reported at a higher cost
than its real value. -y capitali+ing on expenditures it makes the balance sheet
suggest the company has higher total assets than they really possess.
#herefore! by choosing to capitali+e rather than expense expenses! the
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company.s income statement is incorrect and gives investors false information
from which to make a decision.
/. Earnings manipulations are 0an instance in which a company.s
managers violate generally accepted accounting principles to favorably
represent the company.s financial performance.1 Earnings management is
where the manager will change their earnings within the generally accepted
accounting principles to show good financial output. 2either practice is ethical
nor do they accurately reflect a company.s earnings. -oth processes result in
intentional manipulation. #he first practice is blatantly breaching 3,! whereas
the latter is conforming dishonesty to the 0rules1. 4ur forefathers would be rolling
in their graves if they knew the future of their country would result in purposeful
fraudulence on such a large scale. Each procedure should be highly condemned
by the business world! however! greed usually outweighs conscience efforts of
right doing.
Works Cited
Click %orensics. Click%orensics.com. 1/ pril (556.
http7**www.clickforensics.com*resources*click8fraud8index.html
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