Rio Tinto Ltd, a multinational resourcing company, faced major scrutiny over its accounting and ethical practices on 5th July 2009, when its four employees were arrested for accepting bribes and using espionage for iron ore pricing negotiations in China (Garnaut, 2010). Stern Hu, amongst the many corrupted staff involved in the bribery scandal, was a former executive in Rio Tinto where he demanded a “30 per cent commission” in return for securing high-end contracts with Rio Tinto’s trading companies in China (Garnaut, 2010). As Garnault (2010) describes in his article, Hu instructed his staff to obtain information he believed to be “very sensitive” which would have “a direct impact” on the company’s marketing strategy for his own advantage.In this article, the main accounting issues identified were the effects of the scandal on Rio Tinto’s share prices, financial statements, reputation, relationships with future trading partners, and the implications of the Chinese Government overpaying for iron. The main ethical issues identified were the Hu’s general conduct regarding bribe taking and espionage and whether the staff members acting under Hu’s instructions acted appropriately. Accounting Issues
The scandal resulted in a range of accounting issues which affected both external and internal stakeholders. Firstly, in the initial week the scandal was made public, the loss of shareholders’ confidence in the company’s ability to provide future dividends resulted in shareholders quickly selling their shares, where the share price dropped 6.37% (ASX, 2010). Furthermore, there was a 23% decrease in profit between June to December 2009 (Stafford, 2009). Financial statements like the Income Statement and Balance Sheet would be directly affected as the decreased profit would reduce retained profits, owners’ equity and cash in bank. Internal stakeholders like shareholders are affected as less profit would possibly mean less dividends being paid out to them....
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