This report is based on the demise of Enron Corporation and WorldCom. Both the firms are demised due to the ethical lapses. These ethical lapses come into existence when managements of the firm, uses unethical practices to accomplish the goals of the firm. Maintaining financial and accounting standards in the business practices are necessary. The profession of accounting has become a mockery due to the accounting scandals that took place all over the world in the last decade (Smith & Smith, 2003). The major companies involved in it are Enron, WorldCom, etc. By means of the following paper, the reader will be able to understand the various reasons that are associated with the ethical accounting practices, reasons behind dissolution of Enron and WorldCom, ethical violations done by Enron and WorldCom in accounting practices and the role of business ethics in financial strategic planning.
Dissolution of Enron Corporation
Established in 1985, Enron Corporation was formed with the acquisition of Houston Natural Gas by InterNorth. The fraud case of Enron is highly complicated. It is also that that failure of Enron is due to the implementation of accounting method 'mark to market'. The use of this method and other questionable practices made it complex to identify how the company was making profits. The profits were recorded in the books which influenced the stock price of the company. But Enron Corporation was not paying taxes according to the profits (Hinman, 2002). The accounting method used by Enron allowed it to make profits and maintain the growth without any taxable cash. The company underwent complex deals which no one could understand whether they were legal or not. Finally the leading energy corporation started falling. As the stock came down, raptors also declined. In the year 2001, Chief Executive officer of Enron Jeff Skilling resigned due to his personal problems. The resignation of CEO shocked the industry and the management (Hinman, 2002).
Dissolution of WorldCom
The WorldCom Inc is a telecommunication company and Bernard Ebber was the former Chief Executive of WorldCom Inc, who was found guilty because of accounting scandal. The accounting Scandal of Bernard caused the bankruptcy of the WorldCom Inc. The accounting scandal includes the amount of $11 million, which also caused the loss for the investors. Bernard presented false financial statements to the investors to attract more investment in the company's projects. The corporate image of the WorldCom Inc. also declined because of the Bernard Ebber case (Crawford, 2005). The investor felt hesitation to invest the money in the stock of the company due to fear of the accounting irregularities in the financial statements. A huge amount of reduction was also seen in the earnings of the company. Ethical Violations in Accounting Practices at Enron Corporation and WorldCom The image and reputation of the accounting profession is built due to the members who are involved in this profession with the highest sense of honesty and truthfulness in the interest of the public. Both Enron and WorldCom have violated ethical and accounting principles of honesty and integrity. These companies have failed in the industry; due to the accounting scandal has provoked the full-scale reconsideration of the corporate government practices, regulatory oversight mechanism, accounting/auditing and financial reporting industry and the interiority of security market of the United States (Hinman, 2002). Enron had not provided true information regarding their financial position and mailed their stakeholders such as employees, investors, public, etc. Arthur Anderson and Enron conducted them self in the mist biggest accounting scandals, they misrepresent their accounting data and inflated the profits (Hinman, 2002). WorldCom is also involved in corporate fraud and violation of ethical...