Corporate Governance & Ethics

Objectives
This assessment item relates to the course learning outcomes 1, 2, 3 and 6 as stated on page 1.
Part A (25 marks)
The following brief essay is based on the opinion of the writer. You should read it critically and be
prepared to question its validity. Whether or not you accept the ideas contained within it, you should be
able to state the reasons why.
Truth, trust, and Arthur Andersen.
Ultimately, all issues in commerce can be explained in terms of ethics and ethical decision-making. Ethics,
in turn, are supported by values, and all values can be reduced to the core values of truth and trust. This
may appear too simplistic, but the proposition deserves some scrutiny.
All commerce is conducted with some degree of trust. No person would buy an iPhone from a business if
they believed that the business was likely to be selling a fake product. Conversely, no business would be
able to survive once its customers and stakeholders are convinced that the business is untrustworthy. Some
level of trust must exist between a business and all of its stakeholders. Investors trust the business to tell a
truthful story of its performance and financial position, or no-one would invest in it. Employees trust their
employer to provide a safe workplace, free from bullying and harassment, or it would become hard to
attract new employees. Without a minimum level of trust, business could not be transacted.
In concert with the idea of trust is the value of truth. Truth is a lot more problematic “ different people or
groups have different ideas on what constitutes truth. As any historian will tell you, there is often more
than one truth, especially when human judgement is involved. In commerce, law makers and standard
setters tend to provide prescriptive measures for truth so that ambiguities are removed. Accounting
standards are just one example. These standards set out a prescribed standard for truth (or at least a
generally accepted version) for how financial reports are to be presented, and how elements are to be
recognised and measured. A good example of this is how assets are to be measured. The measurement of
assets represents one view of the true value of a business. As you can imagine, there are many different
ways that assets can be measured, and consequently many different true values for a business.
Accounting standards try to narrow this to a small number of acceptable ways of measuring asset values.
This is not always successful, and sometimes business leaders will try and interpret accounting standards to
serve a less than ethical purpose.
Consider the story of Arthur Andersen LLP. Arthur Andersen grew to be the biggest of the big accounting
firms. They had a reputation for excellence in auditing, and they audited some of the biggest corporations
in the world. However, something went awry with their corporate culture and in 2002 Arthur Andersen
closed down following involvements in a string of corporate scandals around the world, and the resulting
court cases and settlements.
Required:
You are to investigate the nature of independent, external auditing in supporting ethical decision-making
and good corporate governance. Why is it necessary, and what is its purpose? You must also investigate the
reasons behind Arthur Andersen s closure and the extent to which they relate to the values of truth and
trust. To do this, you must address the following:
1. What is the purpose of having independent and external audits? How do such audits support good
corporate governance and ethical decision-making?
(5 marks)
2. Investigate how Arthur Andersen s corporate culture changed over time, and determine the extent
that this was responsible for Arthur Andersen s eventual closure. To what extent was Arthur
Andersen concerned about truth and trust in financial reporting, and did this concern appear to
change along with changes in corporate culture?
(10 marks)
3. Review the Sarbanes-Oxley Act of 2002. How does this attempt to restore truth and trust in
financial reporting? Investigate whether or not this has been successful.
(10 marks)
Part B – Presentation of the assignment: (5 marks)
The assignment should include a cover page and all questions should be clearly numbered.
The assignment should be prepared using 12 point font and 1.5 line spacing.
The assignment must include in-text referencing and a reference list in accordance with the current
edition of the Guide for students.
The assignment should demonstrate logical flow of discussion and correct spelling and grammar.
Research beyond the set readings and coursework is encouraged.
Note: All answers must be supported by reference to authoritative sources. Refer to the current edition
of the Guide for Students and the Communications Learning Centre/Learning Network for assistance
on researching and/or presenting this assignment.

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