Ethics Article Review

Organizational Situation Related to Article

The concepts of Messmers article relate to Thermo Electron due to the fact that the final version of the Code of Ethics as well as a complete online Ethics training program was recently implemented. The events that lead up to the implementation of this company wide ethics program are discussed throughout the remainder of this paper.

Thermo Electron is a large manufacturing and distribution company in the pharmaceutical industry. The shareholders have always placed great emphasis on the cash flows generated to sustain the company's operations. Although no contractual agreements are in place, the company regularly pays generous bonuses to the management team based on positive operating results. Therefore, the managing director, Mark Ellis, is particularly interested in the size of the increase in cash flow operations.

Just before the end of the current year, Mark approached the company's accountant to get an idea of how the cash flow position for the year is shaping up. All indications were leaning towards a negative outcome. The company has not seen a negative cash flow in many years. After careful review of the draft statement of cash flows, Mark was very concerned. Our text defines statement of cash flows as an activity statement that shows the details of the company's activities involving cash during a period of time (Williams et al. 2003, p. 12).

Mark approached the company's accountant and elaborated on how important a good cash result for the year would be a positive reflection on the accountant's job performance. Mark further suggested that the accountant delay a large payment to one of the company's creditors. As well as suggesting that the interest paid on long-term loans be classified as a cash outflow from financial activities. These "small" adjustments would give a satisfactory net cash flow from operations result.

Mark's unethical code of conduct could have had serious repercussions on the various stakeholders who rely on the financial statement in making their decisions. Just one example of such repercussions would be, the fact that shareholders rely on the financial statement to decide on whether to invest in the company's stock. With deliberate misinterpretation of the statement of cash flows shareholders may be deceived into believing that the company has a healthy cash flow.

A characteristic common to accounting is the need for competent individual practitioners to solve problems using his/hers professional judgment and applying strong ethical standards (Williams et al. 2003, p. 22). Therefore, an unethical act violates the ethical standards of the profession. One of the key components mentioned by Messmer was that leaders must set the example in the company. Employees often model their own behavior after executives, managers and others who have succeeded in the company (2003). Obviously, the Managing Director is not demonstrating a positive example in this situation. To make matters worse, he is subtly blackmailing the accountant by emphasizing the importance of good cash result for both himself as well as the accountant.

Conclusion

As Messmer pointed out in his article, Time magazine recently named two accounting executives as Persons of the Year. These accounting executives exposed fraud and wrongdoing and sent a powerful message to the accounting industry: A message that ethics is an issue of paramount importance gaining attention in the business community (2003). Ethics should be viewed as a core value. Ethical standards are to be applied any time a decision is made or an action is taken. Conducting oneself with integrity should be considered as important as bottom-line results.

References

J. R. Williams, S.F. Haka, M.S. Bettner, & R. Meigs 2003. Financial Accounting

(11th ed.).New York: McGraw-Hill/Irwin

Does Your Company Have a Code of Ethics? Retrieved May 29, 2005, from http://www.imanet.org/ima/docs/1200/1123.pdf

Ethics Article Review