In relation to your Chosen company draw on academic literature to explore the themes of sustainable business practices, corporate governance, business ethics and corporate social responsibility to stakeholders.
The WorldCom scandal is the last of the business scandals that have been registered in the United States since the fall of Enron, when the energy company went bankrupt, to which others have followed. WorldCom is being investigated for fraudulent handling, through which it transferred expenses of $ 3.85 billion dollars to the line of capital investments. The Securities and Exchange Commission, the US securities regulator, sued WorldCom and accused it of hiding losses amounting to 1,220 million dollars through this maneuver.
The scandal was a new milestone when a group of 25 banks reported having been subject to fraud by WorldCom for an amount of 2,500 million dollars(Velasquez, 2018). The FBI arrested two former WorldCom officials in New York on charges of conspiracy to defraud and other crimes.
The repercussions of the gigantic fraud of the Enron energetic had not yet been silenced when, on Wednesday, the 26th, the scandalous scam of WorldCom, the second US telecommunications company with branches in more than 60 countries (including several in Latin America), exploded.
This is how the system works. This is, in effect, to the conclusion that this succession of frauds gives to the scale of the economy of whole organization with an example of WorldCom. Corruption is inherent in a system that is governed exclusively by the law of maximum gain. It appeals to any method to increase the benefits and the speed of circulation of speculative capital, while the authors and beneficiaries of gigantic embezzlements enjoy until now the absolute impunity(Bowie, 2017).
The auditors detected in the telephone company WorldCom new accounting errors, worth 3,300 million dollars (about 3,416 million euros), with which the figure poorly recorded in books reaches 7,180 million dollars, as reported by the current administration of the company. The WorldCom case forced the suspension of payments of the signature, the largest in the history of the United States.
After a second review of its accounting, WorldCom revealed irregularities in the account register for another 3,300 million dollars. Some income comes from reserve funds for investments, which companies usually keep separate to cover extraordinary expenses that arise in the future(Murthy, 2010).Those who are excluded from suffering the material consequences are the managers of the companies, who appear on TV as honorable gentlemen (although voices are raised claiming jail for them). With the blessing of their boards of directors, these managers are assured of millions in compensation and generous compensation in case of forced retirement. Enron gave its directors 745 million dollars in 2001(Vona, 2008).
The Scandalous Fraud
Almost simultaneously, a similar situation appears with Xerox. The large office equipment company acknowledged "accounting errors" for $ 2 billion, but The Wall Street Journal estimates at $ 6 billion the sum of the highest fictitious income accounted for incorrectly in the last five years. His actions fell short but these are far from the only cases. After Enron, frauds followed that reached the following firms: Global Crossing, Qwest, Adelphia, Dynegy, Tyco, ImClone. Even on Thursday nothing less than General Motors was paralyzed its stock price after a sharp fall due to current information that was the subject of an investigation for accounting irregularities.
The items are usually of importance since they include the expenses of acquisition, maintenance, salaries of the driver. The owner of a Limited Company sold clandestinely in time of inflation, goods whose production was consigned to "Special Account", which led to the House to bankruptcy. A stock of preferred shares, which were on the books during inflation at a price of 20 marks each, was obtained at the time of sale a high profit. The alienated shares were accounted for by the reduced value, so that the benefit disappeared and remained in the owner's pocket, without imposition of excise taxes. Merchandise previously acquired, but not accounted for in a timely manner, was sold at a very favorable price; After the initial purchase and the subsequent purchases, with fictitious high prices, in the middle of the period, supposedly huge losses were posted(Vona, 2008).
Causing the collapse in the stock markets, the fall of the Dow Jones and the Nasdaq, the fall of the dollar that was practically matched with the euro, massive layoffs of personnel, in addition to enormous damages to the mass of shareholders and public pension funds. The new maneuver was carried out, in an identical manner to the Enron case, with the clear complicity of the auditing company Arthur Andersen (Steger and Amann, 2008). Between one and another fraudulent bankruptcy there were several others, which shows that it is not isolated cases but rather the way the system works.
The evaluation of the corporate governance of a company can be a subjective exercise. However, it is part important part of the risk classification process. Strong corporate governance provides the company with a directory and top management that allows adding economic value, increasing the probability that the Company is financially healthy in the long term. Also, it can reduce costs derived from bad government. From the perspective of corporate governance, there is a correlation between the level of corporate governance and the level of credibility that a risk rating agency can assign a directory to do what it says it will do (regarding the strategy in the future, the delivery of future results, the maintenance of certain indicators of indebtedness within certain ranges, etc.) (Wells, n.d.).
Repercussions on the Market
As a first question, it emphasizes that the practices that generate a level of compliance of less than 30% are those related to the existence of a procedure for evaluating and improving the functioning of the board of directors with the participation of an external third party; to the minimum monthly time that directors dedicate to the exercise of their position; and electronic mechanisms for disseminating information to the market(Eliot, 2016).
On the contrary, the practices that exhibit a level of compliance higher than 90% are those related to the existence of an induction mechanism for new directors; of an information documentation procedure regarding directory agreements; of a system to respond to the concerns of shareholders and others; and the updated website of the company.
Additionally, there is only one practice that is not adopted by any issuer, which is that related to the existence of mechanisms that allow for remote and real-time voting of shareholders at meetings, which apparently would be explained by the fact that it does not yet exist in our company.
The practices which are important in corporate governance analysis are: (i) Evaluation and improvement procedure with the help of an external third party; (ii) Minimum monthly time for directors; (iii) Formal procedures for risk management; and (iv) Complaints system.
- Procedure for evaluating and improving the functioning of the board of directors
30% of issuers say that although they have a procedure for evaluating the directory, it is not carried out by an external third party. It is also worth noting that 23% of issuers estimate that it is not necessary to have this practice. There is also a relevant percentage of issuers that do not adopt it but, precisely, intends to implement it, and another percentage, which does adopt it, states that it has this procedure. However, it declares that it will be implemented during the year 2013 for the first time(Hirschey, John and Makhija, 2009).
- Proposed minimum monthly time that directors must dedicate
More than 90% of the issuers indicated that they do not adopt this practice, either because they consider that it is covered by the law, given that it is a personal obligation of each director that can not be imposed or regulated by society, or that, In its concept, it is not a good practice of corporate governance(Sherman, 2013). Also, those who say they observe it, do not indicate a specific time limit, but leave this determination in the hands of non-public policies.
- Formal procedures for internal control and risk management
The vast majority of issuers - over 83% - declare to follow this practice. Additionally, almost all the issuers that declare not adopting it indicate that they are in the process of implementing it.
The Importance of Corporate Governance
The foregoing assumes, in principle, that having risk management policies is seen as a relevant issue within organizations, generally perceived as a good practice. However, the responses delivered in percentage terms regarding the existence of committees or internal control units draw attention, since a smaller percentage of companies declare to have them(Sherman, 2013). This could suggest, in the absence of more concrete data, that there are indeed risk control policies, but not with the entities that must control them in the way the corporate governance aspires.
Business ethics is important because it goes far beyond employee morale and loyalty. Ethical operations of World com is related directly to profitability in both long term and short term. The reputation of a business is paramount in determining the investment worthiness. Therefore, if a company is hit by scandals and unethical issues relating to its financial statements, the investors and other stakeholders will lose confidence in the company (Merna and Al-Thani, 2008). Worldcoms management was unethical in allowing profits to be overstated from reserves. Companies that have incentives to be ethical in areas of social responsibility and ethical investing will keep on growing, and investors take these companies more seriously.
The term earnings management includes those accounting practices designed to ensure that the financial statements presented by the companies are in line with the interests of the executives, contrary to the faithful aspect that must be reflected in the Financial Statements and that precede any ethics of the accounting professional. This happens because the benefit is an indicator of quality over the directive so that "cooking" good benefits will generate additional remuneration for meeting objectives(John, Makhija and Makhija, 2015). There are also incentives to reduce the company's tax burden through accounting.
History has shown that despite the professionalism of the accountant and the ethics that this process, the economic pressure is more intense, which has led to very sound accounting scandals. To this end, the parent company could pass the audits in a solvent manner(Pacces, 2013). Of course, this practice lacks any objectivity or integrity that could reflect an Ethical Code but between altering the veracity of the financial statements or being dismissed with the burdens that each one carries, a great internal conflict is generated, in which the mortgage charges of oneself and the bills to be paid from month to month acquire an important weight(Krambia-Kapardis, 2016).
Finally, it is important to remember that the financial sector depends on its decisions the truthfulness offered by the financial statements of any company, so that not only is a correct regulatory framework necessary to reflect the true image of your accounts, but also the company and the accounting department in particular must have the will to apply such regulation, whatever the economic scenario of the company(Jickling, 2009). In a loss scenario, there is an incentive to make up the negative result with countable results, by much Code of Ethics in accounting practice that exists. These practices are a fraud that ends up generating bad investment decisions and artificially sustains the contributions, until the crude reality of the accounts or an external report from an independent agency.
Analysis of Corporate Governance Practices
In companies, ethical values ??and principles have also taken on a greater scale at the level of
priority. Values ??are sought not only in the operation and administration of the company but in each of the individuals related to the organization(Cascarino, 2012). Values ??such as respect, integrity, and honesty,
mentioned in the values ??and principles in most of the national and international companies in the
Currently, which pursues the work environment of the organization in question for all agents
internal or external that relates to it: "Conduct our operations with integrity and respect for the many people.
We establish high standards of performance and behavior ethical that we apply internationally
"Our Principles and Values ??are what give us the Personality, the way of being.The idea of ??the companies is to ensure the use and practice of the ethical values ??of their company, with the desired economic results. The areas with the most problems regarding this "union" of objectives are the accountants(Balleisen, 2017). Although it is not impossible to keep an ethical accounting department and economically correct at the same time, involves professionals fully trained for this and, even most important, companies that have ethical principles of which they are fully convinced and committed to its fulfillment.
The main problem regarding the professional ethics of an accountant arises from companies. Suppose, ethical, are fully educated in a public accountant. If the company in which you work, not in your screen of values ??and ethics but the real vision to generate more income and decrease all expenses(Coenen, 2008).
Possible requires the accountant in exchange for keeping the job the evasion of taxes and deduct more than legally established; the accountant then sees himself in a problematic between his ethics and his needs as an individual. Another example is obtaining the gross profit of the company. If an accountant considers different amount of costs for the income statement of the period, is falsifying or hiding information. What to choose? Cases like these, without justifying at any time the decisions of the public accountants, are the most common, in addition to that the solution most of the time commits the illegality required by the organization, at the expense of corrupting the accountant's principles(Yu, 2013).
There are many examples of companies whose accountants have neither followed nor followed ethical principles, whether on its own initiative or not: the famous WORLDCOM, in which the lack of cost and expense association with income, presenting incorrect figures led to the biggest fraud in history; WorldCom, capitalization of operating costs, is a case of unethical conduct by the management of the company.
Accounting decisions taken ethically have maintained and given prestige to companies, thanks to they have not been involved in scandals and whose accounting improves in quality and principles.Through its firm and defined ethics, the organization shares and supports its accountants in deciding on the well general, keeping in mind his professional ethics(John, Makhija and Makhija, 2015). These companies are the ones that, in the need of supplement the commitment and stability of the values ??and ethical principles of the accountants, provide them with tools necessary to procure them .
A tool that helps accountants and also foresees frauds of various kinds is the use of an Enterprise Resource Planning System. Through an ERP, for its acronym in English, is planned and controlled the manufacturing, marketing, sales and finance of a company, so altering a number would involve change all departments, as well as their reports and information entries. This is what World com could have applied.
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