Ethics can be defined as the moral actions that the society considers to be either right or wrong. The principles of ethics can be adopted to discourage an individual behavior that the community thinks wrong. Ethics tends to lack the certainty that is provided by the jurisdiction because some individuals and groups may consider the legal things to be unethical (Alexander et al. 677). All professions require the practitioner to not only adopt the legal systems but also find the ethical standards. For instance, if accountants behave unethically, the clients may end up losing the confidence in the services offered. Also, the society may end up losing the trust due to the feeling of acting according to the public interest.
An understanding of the situation at Computer Associates
Over the time the management has found it challenging to forecast earnings and revenues each quarter accurately. In addition to this, management has found it difficult to warn the analysts about the unexpected shortfalls of taxes until the quarter terminated. Computer associate (CA) early announced that its financial results would be less than the current Wall Street estimates. According to the New York Times article, the CA management incorporated the use of aggressive accounting practices to boost the overall earnings (Soltes & Eugene 5). When Richard became the local figure of CA, and his actions diminished the growth of the firm. Earlier CA had acquired numerous competitors and firms that produce complementary products before Richard joined the organization.
For most software of CA, the clients were supposed to purchase a license for them to use such product for a maximum period of one decade. During the period of licensing, CA ensured that it provides both the technical support and software updates. Contrary, fee increased with the length of the contract. As such, the costs increased with the length of the contract but an additional year was quite lower than the previous year thus reflecting the obsolescence of the system. The fee revealed vast amounts of money even in instances of a small contract. Under the General Accepted Accounting Principles (GAAP), revenues from the licensing of software were recognized after the contract was signed, delivered and reasonable assurance of payment (Soltes &Eugene 4). After meeting the three conditions, the firm knew the value of licensing. According to the general rules of GAAP, CA records the present cost of licensing contract when the revenue when the criteria are met.
Analysts believe that when they wait in a quarter before signing a contract, there is a high possibility of inducing better deals. Moreover, when the deal is bigger, the more likely the prospects will prefer to use delaying tactics. As such, a considerable portion of revenue obtained by CA is commonly booked during the last week of the quarter. Despite the reassurance of CA to the public of accurately following the GAAP accounting procedures, the allegation went a step further and brought into the board the attention of federal investigators who worked with the Department of Justice (DOJ). Furthermore, the Security and Exchange Commission was not left behind (SEC). In addition to this, Kumar raised some concerns to the board members about the unfounded claims that were raised about the firm. Consequently, the board of CA enlisted Steven Woghin to examine the allegations. As such, the initial discussions with the available documentation and the individual managers did not support further claims against the firm.
The federal investigators also expressed their dissatisfaction with the internal organizational organization internal department of investigation over the allegations. To face critic the corporation board called upon the prestigious law firm to conduct more research. Forensic accountants together with the attorney went through each employee computer and the twenty-three boxes that were initially missing. After three months, the team was able to find sufficient evidence that implicated the organization's CFO for enhancing backdating some of the contracts. Later the chairman and the director of the auditing committee called upon the board committee to announce the existence of definite evidence that the employee's process of backdating some contracts (Sokol 399). The firm also released a statement that purported that some contracts appeared to have been signed after the end of the quarter where the revenue associated with such contracts were already signed. Also, the committee lacked the evidence that claimed the cash flow associated with the deals were not genuine. The contracts were invalidated, cash was received, and products were also delivered. Contrary, due to improper recognition of the revenue, three executives were rendered unethical and had to resign.
Discussion of ethical tension
It is unethical to deny the acquisition of getting involved in backdating as Richard and Kumar did. Even when the federal prosecutors believe that the senior officers participated in backdating. This is because the prosecutors were sure that the management was obstructing the process of investigation then the control was portraying a severe offense. Later the attorney discovered several email exchanges of emails that implicated Richard and Kumar. Richard resigned from the company and as SEC then filed a formal complaint against him. Prosecutor alleged that the offender was a global head of sales at CO and took an integrative approach to extending the fiscal quarter. This facilitated the subordinates to get contracts that may have been backdated. The complaint also went a step further and detailed the act misreporting affected the earnings and revenue during the financial year of 2000 2001. The complaint alleged that the misconduct took place during the fourth quarter of 1998 and second quarter of 2001 fiscal year. Although Richard pleaded guilty, he was sentenced to 7 years. By reflecting this situation, Richard concluded that he felt that there was a fundamental difference between the CA and other publicized companies that have similar scandals.
Original thoughts
Computer associate executive Stephen Richard was accused of backdating the contracts for a few days. This was unethical and also can be classified as a federal crime. Besides, the federal investigation concluded that the crime was committed, Richard denied the allegations. Richard violated the GAAP which states that the revenues should not be counted until all parties have decided to sign a contract (Larcker, David & Anastasia 503). The inflated incomes kept the company stock price rising. Richard paid more than what the stock required a condition that made many shareholders suffer numerous loses after the revealing of the practices. Investors should be sure whether the deal is signed at the end of the quarter as long as the provided details are accurate. However, investors have a habit of focusing on quarterly earnings and revenue targets. While looking at the case of Richard, the company executive of Computer Associate, accommodation of inflated figures displayed that he was paid more than the normal which is unethical by the GAAP.
Richard does not believe that the Computer Associate case and other similar corporates give much about the regulatory reforms. The accounting flexibility is necessary to all public companies albeit it becomes difficult to detect some breaches. Richard believes that everything in the financial statement is all about the choices in an attempt to exercise the economic discretion because efforts to eliminate option can render reports to be meaningless.
The organization's values have evolved as time goes by and they preserve the objectives viewed from the outside. People have been worked in the organization long, and as a result, thus they tend to see the organizations values as similar to others. I don't think that someone to facilitate evil norms. This is because they develop ways that later becomes more incompatible with the outside world.
Richard tries to urge that the board of directors should always be careful to carelessly give incentives to the executives in the process of cooking the books. The letter attempts to portray that directors should remain dedicated and vigilant at such times in work.
Unlike many positions in a company, the accountants are bound by the rules of both the organizations and professional standards in the general accounting industry. They have ethical responsibilities to both internal and external parties of the company. By understanding the ethical responsibilities of accountants, a company can understand whether the information induced is appropriate to share.
Ethics codes assist the professionals charged by the jurisdiction. If the actions taken resulted in harm, the system- abiding can is less likely to be rendered guilty of committing a crime (Coates, John & Suraj 653). However, the principal of trust makes the public to have expectations that the law induces a professional judgment that act according to the public interest.
Even when life seems to be ok, an ethical dilemma can occur in different perspectives especially when we do not expect them. When we face moral difficulties, a decision, as well as an action we decide to take, should not create a problem (Tingle &Bryce 725). Thus how we react have significant implications because it gives us a reputation for our careers.
The opportunity for fraud is the most causal factor for an organization to address the underlying issues. Unlike rationalization and motivation, the opening does not incorporate the use of potential fraud state of mind. In addition to this, reduction of opportunity works even in the absence of existing fraudster in any workplace setup.