Business Ethic Paper

BUSINESS ETHIC PAPER

“ACCUNTING PUBLIC PROBLEM & MANAGEMENT ACCOUNTING PROBLEM”

ENENG SUHERNA

2011031246

I.                  BACKGROUND

             Along with the increase in the current economy leads to globalization, the need for financial statements that can be accounted for is increasing. Impact of globalization also had a negative impact on audit services, independent auditors, professionals or public accountants are required to demonstrate professionalism. Accountant or auditor must be able to provide the best quality service responsibly and maintain public confidence.

             In the face of challenges in the future, professionals are required to have special abilities and skills in a profession, in addition to running a profession is very important to have professional ethics. In the code of ethics are ethics charges, which in the Greek language is composed of two words that ethos which means habitual or customary, and ethikos which means inner feelings or mental habits that encourage people to behave. Includes a standard of professional ethics of the attitude of the members of a profession that is designed to look as much as possible the practical and realistic, but still idealistic. Every accountant should comply with the ethics of their profession in order not to deviate the rules in resolving the client's financial statements.

             With the professional code of ethics, accountants are expected to behave properly and not do anything that is against the rules. Even so sometimes violations still occur. This is due to a lack of understanding and knowledge in implementing ethics adequately. It is therefore necessary to have a foundation on certain moral and ethical standards. To support the professionalism of accountants, Indonesian Institute of Accountants (IAI), since 1975 has endorsed the "Code of Accountants Indonesia" which has been revised in 1986, 1994 and the last in 1998. In the Preamble to the Code of Accountants Indonesia in 1998 emphasized the importance of the principle of ethics for accountants. By becoming a member, an accountant has an obligation to maintain discipline and meet all laws and regulations that have been required.

II.                THEORETICAL BASIS

1. Ethics In Review

1.1 Definition of Ethics

According to the Ancient Greek language, ethics derived from ethikos word meaning "arising from habit". Ethics is a major branch of philosophy that studies the value or quality of being the study of moral standards and assessment. Ethics covers the analysis and application of concepts such as right, wrong, good, bad, and responsibility. That's why ethics is a science. As a science, the object of ethics is human behavior.

            According to Martin [1993], ethics is defined as "the discipline, the which can act as the performance index or reference for our control system". Ethics also called moral philosophy. Ethics does not question the human condition, but the question of how people should act.

1.2 Selfishness

The term "selfishness" is derived from the Greek word that is the ego which means "self" or "I", and -ism, which is used to indicate philosophy. Thus, the term is etymologically related very closely with egoisme.Jadi in this selfishness is the motivation to maintain and improve the view that only benefit themselves or the means to put yourself in the middle of the goal and do not care about the suffering of others, including his beloved or which is considered as a close friend. Other terms that are very well known that selfish.

2. Code of Professional Accounting

2.1 Code of Professional Conduct

An outline of the code of ethics and professional conduct are:

a. Contribution to society and human well-being.

The principle of the quality of life of all people affirms the obligation to

protecting human rights, including threats to health and safety.

b. Avoid hurting others.

"Harm" means injury consequences, such as loss of information that is not

desired, loss of property, damage to property, or undesirable environmental impacts.

c. Be honest and trustworthy

Honesty is an important component of trust. Without trust an organization can not function effectively.

d. Be fair and do not discriminate against the values of equality, tolerance, respect for others, and the principles of equal justice in the set command.

e. Property rights including copyrights and patents.

Infringement of copyright, patents, trade secrets and the terms of the license agreement is prohibited by law in every state.

f. Give proper credit for intellectual property.

Computing professionals are required to protect the integrity of intellectual property.

g. Respect the privacy of others

Computing and communication technology enables the collection and exchange of personal information on a scale that is unprecedented in the history of civilization.

h. trust

The principle of honesty extends to issues of confidentiality of information whenever one has made an explicit promise to honor confidentiality or, implicitly, when the personal information is not directly related to the execution of one's duties.

2.2 Principles of Accounting Profession Ethics According to the IAI

1) Responsibility Profession

In carrying out its responsibilities as professionals each member must always use the moral and professional judgment in all the activities done.

2) Public Interest

Each member is obliged to always act within the framework of public service, honor the public trust, and demonstrate commitment to the professionalism.

3) Integrity

To maintain and enhance public confidence, each member must fulfill their professional responsibilities with the highest possible integrity.

4) Objectivity

Each member should maintain objectivity and free from conflicts of interest in fulfilling their professional obligations.

5) Competence and Prudential Professionals

Each member shall perform professional services tkngan prudence, competence and diligence, and have an obligation to maintain the knowledge and professional skills at the level required to ensure that a client or employer to obtain matifaat of a competent professional services based on the development of practice, legislation and techniques latest.

6) Confidentiality

Each member must, respect the confidentiality of information obtained during the conduct of professional services and must not use or disclose such information without consent, unless there is no right or professional or legal obligation to disclose it.

7) Professional Conduct

Each member should behave consistent with good professional reputation and avoid actions that could discredit the profession.

8) Technical Standards

Each member shall perform professional services in accordance with the technical standards and standards relevant proesional. In accordance with expertise and with caution, members have an obligation to carry out the assignment of the receiving services during the assignment in line with the principles of integrity and objectivity.

3. Ethics in Auditing

Ethics in Auditing is a systematic process for obtaining and evaluating evidence regarding assertions objectively-assertion of economic activity, with the purpose of establishing the degree of correspondence between assertions-assertions, and delivery of results to interested parties.

3.1 The role of ethics in the audit profession

• Audit requires a great devotion to the community and a high moral commitment.

• Society demands to obtain the services of public auditors with high quality standards, and requires them to be willing to sacrifice themselves.

• That is why professional auditor sets technical standards and ethical standards that should be used as a guide by the auditors in carrying out the audit

• ethical standards required for the audit profession as auditors have a position as a confidant and face the possibility of conflicts of interest.

• Code of conduct or rules of professional ethics audits provide professional guidance to the auditor in defending themselves from temptation and to take tough decisions.

3.2 The importance of ethical values in auditing:

• Audit requires a great devotion to the community and a high moral commitment.

• Society demands to obtain the services of public auditors with high quality standards, and requires them to be willing to sacrifice themselves.

• That is why professional auditor sets technical standards and ethical standards that should be used as a guide by the auditors in carrying out the audit

• ethical standards required for the audit profession as auditors have a position as a confidant and face the possibility of conflicts of interest.

4. Ethics in Public Accounting Firm

In the profession an accountant in Indonesia is regulated by a code of professional conduct in the name of the Indonesian Accountants Association code of ethics which is the order of the ethical and moral principles that provide guidance to accountants to deal with clients, fellow members of the profession and also with the public. In addition to the code of ethics accountant is also a tool or a means for clients, users of financial statements or the public in general, about the quality or the quality of services rendered as a series of ethical considerations as set out in the code of professional conduct.

There are five rules of ethics established by the Indonesian Institute of Accountants-Compartment Public Accountants (IAI-KAP). Five rules of ethics that is:

1. Independence, Integrity, and Objectivity

a. The independence

In performing its duties KAP members must always maintain an independent mental attitude in providing professional services as set forth in Generally Accepted Accounting Standards set by the IAI. The independent mental attitude should include independent in fact (in facts) and in appearance (in appearance).

b. Integrity and Objectivity

In performing its duties KAP members must maintain the integrity and objectivity, should be free of conflicts of interest (conflict of interest) and must not allow material misstatement

factors (material misstatement) he knows or divert (subordinate) the consideration to other parties.

III.           CASE

ENRON COMPANY OVERVIEW

1.      Company History

             Enron Corporation was an American energy company based in Houston, Texas, United States. Enron traces its roots is a Northern Natural Gas Company, which was formed in 1932, in Omaha, Nebraska. Enron is a company of the merger between InterNorth (distributor of natural gas by pipeline) with Houston Natural Gas. The two companies have joined in 1985 by Kenneth Lay. In 1997 Enron bought power generating company "Portland General Electric Corp." worth $ 2 billion. Before 1997 ended, the management turned the company into "Enron Capital and Trade Resources" which became the largest American companies that trade in natural gas and electricity.

            Enron had a wide range of businesses, among which are electricity, natural gas, pulp, paper, communication, etc. Not enough with these achievements, Enron formed also "Enron Online" (EOL) in October 1999. The EOL is a business unit of Enron that online marketing energy products electronically through the website. In an instant, EOL successfully execute a transaction valued at $ 335 billion in 2000. In January 2000, Enron announced a grand plan that is very ambitious to build a network of high-speed electronic broadbrand (high speed broadbrand) brandwidth sales network capacity to carry out the sale of gas and electricity. Enron finance hundreds of millions of dollars to implement this program, even if the benefits do not appear, but the price of Enron stock on Wall Street jumped to $ 40, and even increased to $ 90.56, so that Enron declared by Fortune magazine and other media as "Corporate America's Most innovative in the world ".

            On 2 December 2001, the world economy is shocked by the news coming from the oil city of Houston in Texas, USA. Enron, the seventh largest company in America, the largest energy company in the world trading declared himself bankrupt.

ENRON COMPANY CASE DISCUSSION

1. Company Enron Scandal

Enron declared bankruptcy in late 2001. The company's bankruptcy raises kehbohan outstanding. Enron's bankruptcy is no longer considered solely as a business failure, but a scandal that multidimensional, involving politicians and prominent leader in the United States. This can be seen from some of the facts are quite astonishing.

In a very short time the company in early 2001 before the bankruptcy was posted revenue of US $ 100 billion, was suddenly reported bankruptcy to capital market authorities. As a business entity, the value of Enron losses estimated at US $ 50 billion. Meanwhile, the capital market lost $ 32 billion and thousands of Enron employees have to cry over the sinking of their pension fund no less than US $ 1 billion.

             Enron stock plummeted to US $ 45 cents worth. Whereas previously in August 2000 was valued at US $ 90 per share. Therefore, many people who say Enron's bankruptcy as the largest bankruptcy in the history of business in the United States and become the subject and reviews in various media such leading business and economics Time Magazine, Fortune, and Business Week.

             In the process of investigating the causes of the bankruptcy of Enron suspected of committing the practice of window dressing that is by recording delay accounts for cash used for private purposes, for example, there are accounts of party A, party B, party C. A delayed repayment of the recording to occur repayment of the B. Only later accounts receivable A note on the company's account. And so on until the fraud uncovered. Enron's management has inflated (mark-up) earnings of $ 600 million, and hide debts amounting to US $ 1.2 billion. Inflating the value of revenue and hide debts worth it certainly can not be just anyone. Require special skills of the professionals who work in or hired by Enron to juggle the figures, so that over the years the company's financial performance appears to still mencorong. In other words, there had been a high level of collusion between the management of Enron, financial analysts, legal advisors, and auditors. Later revealed that Enron's auditor, Arthur Andersen office of Hudson, has helped process the high level of financial engineering.

This scandal complications increases as later revealed a lot of high-ranking officials and politicians in the White House United States Senate who have received funding from the company's policy. 70% of senators, both of Repubik Party and the Democratic Party, had received political funds. In the committee in charge of energy, 19 of the 23 members are also included which receives donations from the company.

Meanwhile, there were 35 key government officials George W. Bush is a shareholder of Enron, which has long been a public perusahaa. In the list of contributors to political fund company, Enron recorded ranks 36th, and contributors ranked 12th in Bush's fundraising campaign. Such linkage result, many people suspect the Bush administration and the politicians have been and will give preferential treatment, both in business and in the Enron during the rescue process of the company.

2. Chronology Company Case of Enron

             The chronology is based on facts, data and information from various sources related to the collapse of Enron (debacle), can be described as follows:

  Board of Directors (the board of directors, executive directors and non-executive director) allow the activity-specific business activity contains elements of conflict of interest and allow the transactions based on the information can only be accessed by the Parties in the company (insider trading), including accounting practices and unhealthy business before it is revealed to the public.

Former Enron Chief Audit Executive (Head of internal audit) is a partner of the firm formerly Andersen designated as a public accounting firm. Enron's financial director comes from KAP Andersen. Most of the Enron accounting staff comes from the firm Andersen.

One of the Enron executives have questioned the reported accounting practice companies that are considered unhealthy and expressed concern with regard to the matter to the CEO and partner of the firm in mid 2001. Andersen Enron CEO assigning legal counsel to conduct an investigation into these concerns but does not allow lawyers to accounting considerations underlying the question at issue. The results of the investigation by the legal counsel concluded that there are no serious matters that need attention.

On October 16, 2001, Enron's financial statements published third quarter. The report said that Enron's net profit has increased to $ 393 million, up $ 100 million compared to the previous period. Enron CEO Kenneth Lay, Enron continually mention that the outlook is very good. He also did not explain in detail about the imposition of cost accounting (special accounting charge / expense) of $ 1 billion, which actually cause the actual results for the period to $ 644 million loss. The analysts and reporters then find out more about the burden of $ 1 billion, and was derived from transactions carried out by companies that established by the CFO of Enron.

On December 2, 2001 Enron bankruptcy registering the company to court and lay off 5000 employees. At the time it was revealed that there are loans that are not in the report worth more than one billion dollars. With this disclosure that the value of investments and profits on hold (retained earnings) is reduced in the same amount.

Enron and Andersen Firm accused of committing crimes in the form of destruction of documents related to the investigation into the bankruptcy of Enron (inhibition of the judicial process. KAP Andersen dismissed as Enron auditor in mid-June 2002. On March 14, 2002 Justice department sentenced KAP Andersen guilty on charges inhibition in the judicial process because it has destroyed the documents that are being investigated. KAP Andersen continues to accept the negative consequences of the Enron case in the form of loss of clients, the defection of affiliates who joined the firm to another and increased disclosure about the firm Andersen employee involvement in the Enron case.

3. Audit Issues

             Independent auditors are responsible for providing assurance services. While management, assisted by lawyers, financial advisors, and consultants, presenting financial information, public accountant in charge of assessing whether the financial information is reliable or not. Absence of information about the behavior of a company's performance depends heavily on the results of the assessment of public accountants. The word "public" that accompanies the accountant showed that the authority granted by the public and therefore also its responsibility to the public (guarding public interest). Meanwhile, the word "unqualified", which became a public accountant opinion, implies that the audited financial information is trustworthy, do not contain any doubts. Therefore, in carrying out the audit, the auditor shall detect possible fraud and material error.

Deviation (irregularities) and fraud (fraud) will be considered as a norm. Failure to be objective and independent existence is tantamount to the loss of the profession. Justify, even the cover, manipulative behavior management is clearly a betrayal of duty "sacred" public accounting profession. Therefore, it is reasonable if, in the case of Enron, the auditors blamed for failing to protect the public interest-giver authority.

The existence of misinformation. In the case of Enron for example, the management of Enron and Arthur Andersen know about accounting and business practices that are not healthy. But in order to maintain the confidence of investors and the public both sides manipulate financial statements from 1985 until Enron became shattered.

  Arthur Andersen, a public accounting firm not only to manipulate the financial statements, Andersen also has acted unethically, in the case of Enron is by destroying important documents relating to the case of Enron. Arthur Andersen destroying documents in the period since Enron started sticking to the surface, until the advent of the court summons. Although the destruction of such documents in accordance internal policies Andersen, but this case is unlawful and cause credibility Arthur Andersen destroyed. Here Andersen has broken from profesionallisme attitude as an independent accountant to perform actions issuing audit reports were wrong.