The ethical issues in business and accounting play a crucial role in the company’s developing and acquiring the status of the influential and reliable enterprise. In this paper I am going to examine ethical issues in two companies: Western Bank and Trust and Bobby’s Bagel.
As far as the case of Western Bank and Trust is concerned, I strongly believe that their action was wrong and unethical and brought much harm to many people involved, since the violation of ethical norms in business were not fully complied with since to get the maximum tax deduction, the company allocated 90 percent of the purchase price to the building and 10 percent to the land for the total sum of $ 3 million. Since managers’ main objective is to generate income using legal techniques, the actions of the managers of Western Bank and Trust violated the law. The underlying factor is the building’s liability to depreciation as opposed to the land which is not depreciable.
As a result the company benefits from this ratio getting more profit by increasing its tax deduction that reduces its taxable income. Moreover, since the allocations to the land and the building are not made in the same ratio as the value of each component possesses in the market, the company spends less funds on the purchasing of the land and the building. Provided that Western Bank and Trust allocated 70% to the building and 30% to the land, it would be more reasonable and legitimate allocation that would entail less tax deduction that would increase the company’s taxable income.
It is noteworthy that the company benefits from this unequal allocation of the purchase price to the components of the real estate. On the other hand, it may be assumed that by getting more profits, the company breaks the ethical rules of business and accounting. Since the company should pay taxes for any operation, including the purchase of the real estate, to the government, it should be emphasized that the governmental organs were harmed as the level of the company’s profit is higher than the taxes that were paid for the operation. Additionally, stockholders, board of directors, employees and the community in general in a monetary and convenience aspect.
As far as Bobby’s Bagel case is concerned, it is possible to dwell on the violation of the ethical principles in business on the part of its managers. It is stated that before the company signed a contract to open 100 stores in shopping malls across the country which allows the company’s profits triple, top managers clandestinely purchased most of the stock being aware in advance that the stock prise would increase dramatically (Horngren, Harrison, and Oliver 679).
From my perspective, this situation is disgraceful for such an influential company like Bobby’s Bagel. Taking into account the common ethical principles, according to which the managers and accountants should provide reliable verifiable information about the companies’ financial statements and should not suppress any information, Bobby Bagel’s managers perpetrated the ethical norms in pursuit of gaining more profits. As a result, a lot of people suffered from damage. Taking into account the accounting principles, it should be stressed that in the case under consideration the principle of reliability or objectivity has been violated.
According to this principle, the data, the company provides, should be objective, reliable and verifiable (Horngren, Harrison, and Oliver 9). In the case in question, the information about stocks was suppressed by top managers, which doesn’t comply with the ethical principles. The negligent actions entailed drastic consequences that would affect the company’s image and stock market, hurt investors’ confidence, cause major layoff, and what’s more important – lose the client base. Moreover, since managers should serve as a role model for employees, the undermining of ethical principles might trigger rapid demise of the company.
Thus, intending to get triple profit by taking risks, the situation caused counter-productive result that harmed both Bobby Bagel’s managers and employees and the clients. However, the situation is beneficial for the competitive companies at the market which have taken advantage of Bobby’s Bagel scandal by acquiring the image of more dependable company regardless of the previous position in the market.
Works Cited
Horngren, Charles T., Harrison, Walter T. and Oliver, M. Suzanne. Accounting, Eighth Edition. London: Prentice Hall, 2008.