Answered

Before investors, lenders, and prospective customers associate with a company, they will consider the company's financial reports and try to project the future profitability of the company. Current and prospective employees are also incentivized by potential profit sharing of a successful company. These and other factors serve as reasons for a company to manipulate financial reports to project unrealistic or even false earnings.

Provide an example of a company that has previously committed financial fraud. Answer the following questions when considering the surrounding circumstances of the company:

1. Is it ever ethical or necessary for a company to manipulate its profitability? Why or why not?
2. Do you believe it is ethical for a manager to entice a customer to record a future sales order in the current period, with discounted pricing, in order to hit a sales goal? Why or why not? What are the future implications of this?
3. What might have caused this company to manipulate financial information?
4. What was the ultimate outcome for this company?

Follow up in further discussion by responding to peers regarding the ethical dilemmas of a company's financial reporting, and whether you agree or disagree with their assessment.



Answer :

GinnyAnswer

Final answer:

Financial fraud in companies like Enron and WorldCom showcases the ethical dilemma of manipulating financial data, with severe consequences including bankruptcy and legal actions.


Explanation:

Financial fraud has been a significant issue in the corporate world, with companies like Enron, WorldCom, and Xerox being notable examples that engaged in manipulating financial information.

  1. Is it ethical or necessary for a company to manipulate their profitability? It is never ethical for a company to manipulate their profitability as it deceives stakeholders and undermines trust in the financial markets. Manipulating profits can lead to dire consequences and legal repercussions.
  2. Regarding enticing customers to record future sales orders prematurely, it is unethical for a manager to engage in such practices as it distorts financial information and misleads stakeholders. This action can result in unsustainable growth, financial instability, and loss of credibility.
  3. Companies may resort to manipulating financial information due to pressure to meet financial targets, gain competitive advantages, or access financing opportunities. Such actions can be driven by a desire to present a rosy financial picture and maintain investor confidence.
  4. The ultimate outcome for companies involved in financial fraud like Enron and WorldCom was bankruptcy, legal actions, and tarnished reputations. These firms faced severe consequences, including the collapse of their businesses and criminal charges against executives.

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