Ethical
Implications
Ethics
Reputation as a Business Asset
Brand
Quality of products and services
Code of Business Ethics
Basic principles linked to responsibility for
actions
Recognition of issues and guidance for
decisions
Business Ethics
Organizational set of standards and ethical
processes
Legal Compliance
Ethical standards of competitors
Value articulated in mission statement
Securities and
Exchange
Commission (SEC)
Creation based on stock market crash in
1930
Legislative laws enacted by Congress
First Securities Act of 1933
Provided regulation for initial securities
offerings
Securities Act of 1934
Creation of the SEC
Provides regulation for securities
transactions
Objective: protect investor by ensuring full
disclosure of financial information,
provide accurate information and prevent
misuse of information
Information
Financial
Balance Sheet (two fiscal years comparison)
Income Statement (current year)
Statement of Cash flows (current year)
Non-Financial
Management discussion & analysis (MD&A)
of operations
Financial Position for the reporting period
Discussion Board
Write a letter to the chief financial officer
(CFO) of JIM including the following:
Outline your findings on the ethical standard
for a corporation’s financial and tax
reporting.
State specific examples of the ethical
standards and laws that you are following
as the tax and financial analyst
Based on your research, state recent
examples of changes in reporting
standards that you have implemented at
JIM.
Corporate Scandal
1990s and early 2000s
Fraudulent financial reporting
Manipulation of accounting function
Fraudulent entries
Off sheet financing
Sarbanes-Oxley Act
of 2002
Response to corporate scandal
Alterations to the accounting and auditing
standards for organizations
Significant changes across the accounting
world
New requirements for management and
regulation and accountants
Corporate responsibility
Enhance financial disclosures
Corporate and criminal fraud accountability
White collar crime penalty enhancements
Responsibility for corporate tax return
information
Professional responsibility
Disclosures for
Financial Reporting
Signing officer has reviewed the reports
Statements do not include untrue, material
or omit information
Fairly present financial position and result
of operations
Disclosure of transactions involving
management and principles stockholders
Code of ethics disclosure for senior
management
Honest and ethical conduct
Internal controls
Controls risk
Ensures that one employee does not have
access to all of the information of the
organization
Works to separate processes from access
Section 404
Financial managers must sign off on a
report of a company’s control over financial
reporting.
A statement of the manager’s responsibility
for control over the company’s financial
reporting
The manager’s assessment of the strength
of the company’s internal controls over
financial reporting during the most
recent year
A description of the framework the manager
used to evaluate the strength of the
company’s internal controls
An additional statement certifying that the
accounting firm that conducts internal
audits of the company is legitimate and
reliable
Section 802
Penalties or fines and/or up to 20 years
imprisonment
Altering, destroying, falsifying information
Penalties or fines and/or up to 10 years
imprisonment for any accountant who
knowingly violates the terms
Write a letter to the chief financial officer
(CFO) of JIM including the following:
Outline your findings on the ethical
standard for a corporation’s financial and
tax reporting.
State specific examples of the ethical
standards and laws that you are following
as the tax and financial analyst
Based on your research, state recent
examples of changes in reporting
standards that you have implemented at
JIM.
Ethic Standards
Events
The Seaview Symposium of 1970
The Equity Funding Fraud of 1973
1983 Action by the IMA
1985 Action by the FEI
1987 Treadway Commission
recommendations
1988 Revision of AICPA Ethics Rules
2002 SOX
Ethical Implications
of Tax and Business
Decisions
Tax loopholes
Tax avoidance
Tax fraud
Tax Loophole
A way of decreasing taxes paid without
directly violating the law.
First Time
Homebuyer Credit
2008
Intended to benefit the housing market
First time home buyers
No credit for current homeowners or
substantial income
Loophole
Taxpayers used minor children to purchase a
home to get the credit
Children who bought homes in 2008 and 2009
were able to keep the credit
Credit was eliminated
Credit for Electric
Cars
Qualified credit for electric cars
2008 Law to promote the development of
electric cars
Credit up to $6,500 for 2009
Loophole
Purchase of golf carts
IRS limitation placed on vehicles
manufactured for golf courses
Golf courts allowed to travel on neighborhood
streets
Congress changed the law to limit the credit to
10% of the cost of the vehicle effective 2010
Large SVU’s for
business use
Provisions limit write offs of luxury vehicles
for business use
No restrictions on vehicles rated at 6,000
pounds
Loophole
Taxpayers purchase large SVU’s
Larger write off smaller vehicles
Tax Avoidance
Legal method
Modifying of tax treatment to reduce tax
liability
Tax Evasion-Fraud
Illegal criminal acts
Intentional
Under reporting income
Claiming false or overstated deductions
Claiming personal expenses as business
expenses
Hiding assets or income
Offshore
Location based in another country
Legal
Tax avoidance
Relaxed regulations
Business purpose
Illegal
Secret bank accounts
Offshore trusts
No business reason
Avoid paying taxes (evasion)
Tax Shelters
Legal minimizing or decreasing of taxable
income
Can have a valid business purpose
Investments
Activities and transactions lowering taxable
income
401k employer-sponsored plan
Corporate Welfare
Subsidiaries
Owned partly or completely by another
company
Foreign subsidiary, company must follow the
rules of the county where the subsidiary
operates
For tax purposes, subsidiaries are separate
legal entities
Government Bailouts
Government offers incentives to return an
organization or industry to financial strong
company
Tax incentives
Offering of tax breaks
Deductions
Credits
Exemptions
Corporate Crime
Costs the US $200 billion a year
Tax evasion
Fraud
Criminal Fraud
Proof beyond a reasonable doubt
Civil Fraud
Proof based on evidence
Phase 2 Individual
Project
Library research project
Ethical standards for corporations
Recent changes in in financial and tax
reporting laws
Cases where corporations have committed
unethical business practices and the
resulting consequences
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