Quiz 8: Ethical Leadership and Decision-Making in Accounting

Business

The case is about S of Germany violated SEC rules and regulations and charged by the U.S. FCPA. The allegations made by FCPA were violation of anti-bribery, violation of books and records. S was fined quite heavily, $350 Million as disgorgement fee to SEC, $450 Million to U.S department of Justice and $569 Million to the office of the prosecutor General in Munich, West Germany. The SEC sued S because the company's stock is listed on NY Stock Exchange. 1. Josephson's six pillars of character: Stephen Josephson has defined character as an important asset for the organization to have and listed six characteristics which are essential for the maintenance of organizations integrity. They are trustworthiness, respect, responsibility, fairness, caring and citizenship. 1. Trustworthiness: The Company cannot be trusted by stake holders anymore because of its fraudulent actions of bribery, illegal book keeping, and improper keeping of records, Thus it fails, to fulfill the requirements of the first character. 2. Respect: The Company seemingly has lost respect of the stakeholders by paying so much of fines and by getting penalized for its wrongful conducts. 3. Responsibility: The Company has failed to show responsibility in its actions by indulging in illegal activities such as offering of bribes and wrong and misleading information. 4. Fairness: The Company's actions cannot be deemed to be fair as they were caught responsible for the wrong conducts. 5. Caring: The Company did not care for the stakeholders rights but looked at their own benefits. 6. Citizenship: The Company fails to represent the characteristics of a good corporate citizen. 2. The U.K Bribery Act is more consistent with ethics perspective because of the following reasons: • It prohibits acceptance of bribes and offering of bribes by a non U.K. company to an inside company. • It is more consistent as it is against the concept of bribes all together unlike the U.S. FCPA. Thus, the U.K. Bribery Act is more consistent with ethics perspective. 3. Companies are supposed to set an example of following the right code of conduct, doing the right things the right way. If organizations start taking short cuts to reach the pinnacle of fame then it is only a matter of time before the employees too start doing the wrong things.

Chinese companies offer plenty of resistance to auditing firms trying to conduct inspection of their premises before they prepare their audit report. This resistance from the companies and partly from the government is due to a variety of reasons, the reasons such as one's given below: Cultural factors: The reason for the non cooperation of the Chinese to comply with PCAOB directives is partly because of their discomfort in accepting uncertainty avoidance, one of the important cultural factors. The condition arises when the Chinese companies and their government do not allow the auditing firms to visit their company locations because of the fear of letting their secrets out. The second cultural reason which might have affected the Chinese Government and the people in offering access to the auditing firms is the acceptance of power distance. People in China are so used to work under the ruling of dictators and thus they used to a great power distance. Legal considerations: The legal factors in China are different from that of the legal factors existing in U.S or Canada. The Chinese law regulates the entry of foreign audit firms to enter and check for evidences in their country. Ethical considerations: When it comes to trust and loyalty, the Chinese companies give least preference to ethical considerations. This can be said based on the fact the information provided in the records is not trustworthy as it cannot be audited. Thus in a manner they are cheating their share holders. These are the various reasons which prevent audit firms in conducting auditing in China.

1. Boosting income with onetime gains: the changes in the payments and receivables, and 2. Failing to disclose liabilities: non-disclosure of liabilities and modifying the debt position. These activities can also be considered as earnings management activities. 3. The audit team of D and Dl failed to abide by the standards of the APCA. The failures are such as the ones classified below: • Failure to contend when debt reconciliation did not took place properly in the records, • The audit team's failure to contend when multiple insider transactions have taken place, and • The audit team failed to contend when the organization have not disclosed their liabilities properly. These are some of the costly errors which the audit team committed and that led them to the case. In this case, the failure of the audit team in following the audit procedures resulted to D in terms of loss of reputation and against its ethical standards. For example, Dl and his team failed to supervise the audit process properly and it is against the ethics of the D's work culture. Also, D advocated the auditors to practice strict professional approach while performing audits but this cannot be seen in the approach used by Dl. Additionally, the audit team failed to check properly whether the audit objectives are fulfilled, this is a violation of the code of ethics. Thus, the audit team had practiced ethical blunders which costed dearly to D.