Fraudulent financial reporting … much is at stake

Companies have enormous ethical responsibility. When a business collapses due to financial fraud, practically everybody suffers. Accounting scandal ‘Enron’ is a fine example. Enron was an American energy company that was forced into bankruptcy almost a decade ago. Employing 22,000 people and having plenty of shareholders, Enron’s staff of executives and former president Jeffrey Skilling used accounting loopholes and poor financial reporting to hide billions of their losses. Above that, Arthur Andersen, one of the “Big Five” accounting firms, shredded documents related to Enron’s audit. When the scandal unfolded, both Enron and Arthur Andersen were doomed to pull the plug. In the end, thousands of employees lost their job, innumerable shareholders possessed worthless Enron stock and billions were lost.

According to Business Finance Guide, Rosemary Peavler ¹, it is primarily the lack of ethics in finance that leads to a fall. She clarifies that long-term viability and not short term profit is to be the objective of the company to stay alive. Besides, if a corporation strives for ethical responsibility such as the control of pollution, it shall be more respected in the long-term, attract more investments, stimulate business and finally improve the balance sheet. Another point is that just too much is at risk during fraudulent activities. Not only countless employees, investors and shareholders are hurt in the process, but other countries and sectors of the economy are affected as well. Also the society suffers. All in all, moral as well as ethical foundations are being disrespected  heavily. Rosemary explains that it is the responsibility of all business to promote sustainable development and raise the standard of living. I could not agree more.

I figure that to curb fraud even more, ethical commitment must be shared throughout the entire organization, the corporation has to be open in its communication about fraud and stronger control mechanisms such as external audit is to be implemented. My point of view is that pursuing business ethics and eliminating fraud opportunities is crucial for a company to strengthen the chance that it will survive in the long-term. Even more, I think that a lack of business ethics within a corporation almost automatically leads to fraudulent behavior.

¹ http://bizfinance.about.com/od/fraud/a/Financial_Ethics.htm

  http://business-ethics.com/2010/04/29/1302-enron-on-broadway-no-accounting-for-bad-behavior/

Kenn Crombé