Chapter 7. Ethics at work. MLittle

Questions:

a. After reading the Enron chapter and the article below: “Andres Fastow, Former Enron CFO, Talks Ethics with Students,” discuss what you think Fastow’s has learned about maintaining ethical business practices.

In my opinion, the way the article reads, it seems as if Fastow really doesn’t own up to being an unethical businessman. He said his main mistake was ignoring the principles behind the rules. But, he went on to say that he used the loopholes that were there and that lawyers and even auditors were there to help him do it by offering advice that created “technically legal” statements, but were not at all understandable. He did admit that these justifications were a manifestation of his lack of character and that he wanted to be seen as a hero. I’m not so sure that, given the chance to turn back time and do it all again, he would choose something different. I think he might try to figure out how to get away with it. What he learned was what let him keep moving on with his schemes – other people. It doesn’t seem that he learned that what he did, in and of himself, was criminal, hurtful, unethical and simply wrong.

b. Do you believe that principles based accounting standards would be more effective than rules-based accounting standards for financial reporting? Give reasons for your response.

No, I do not think that principles based accounting standards is more effective than rules-based accounting standards for financial reporting. Primarily, I believe this because not everyone has the same ethical principles when it comes to business and presenting financial information. And, if this is the case, how could any investor keep up with what is truly going on with any given company. Principles based standards allow for unreliable and inconsistent information making it hard for a user of the information to compare companies to one another. I think that rules based accounting would be better to draw a hard line and make sure that everyone starts on the same playing field. That way the public can have a good sense that everyone is following the same methods and direction as allowed in the rules and be able to trust what the financials say - instead of having to rely on what someone else thought was acceptable according to principles that could be interpreted in a myriad of ways.