Ethical Obligations and Decision-Making in Accounting 2nd Edition by Steven Mintz, Roselyn Morris

Exercise 13

In the accounting fraud at the cable company Adelphia, top management had established a “cash management” system that enabled the founder of Adelphia and former CEO and chair of the board of directors, John Rigas, to dip into the fund for personal expenses whenever he wanted. The final approval for such expenditures rested with Timothy Rigas, the son of John Rigas and Adelphia’s CEO during the final years that fraud had occurred. What’s wrong with the founder of a company, its former CEO and chair of the board, utilizing corporate assets for personal reasons? Can you think of any circumstances where it would be permissible? That is, what would have to happen for this to be acceptable?

Step 1 of 2

Financial statement:

The financial statement of a company is the record of past year activities. There are many financial statements like cash flow statement, balance sheet, income statement, profit and loss account, etc.

Sole proprietorship:

A sole proprietorship is a type of business firm which is owned and operated by a single person. In this type of business, the owner and the firm are the same entity. The name of the owner is the name of the firm. The investment of the owner is the equity of the firm. The owner is liable for all the losses and he receives all the profit of the firm. The sole proprietor is responsible for all the decisions of the firm.