Task 2

The article 'Is Ethical Accounting Becoming an Oxymoron' discusses that the credibility of
accountants has deteriorated due to the accounting frauds which resulted to the Great
Depression in 2008. The major cause of the great depression (as identified in the article) was
the conflict of interests between the rating agencies, the auditors, the shareholders and the
company.
Besides this, the article talks about the 10 major companies (e.g. Enron WorldCom, Lehman
Brothers, Washington Mutual etc.), that were bankrupted due to the accounting scandals. It
also highlights the major fraudulent techniques used by accountants to manipulate the
companies' books. Some of these techniques were hiding billions of dollars off its balance
sheet in order to make the company look more solvent and moving items around in the
financial statements, in order to deceive the investors (Lehman Brothers).
WorldCom had used different ways of hiding their financial condition, such as increasing its
goodwill value at the time of merger with MCI in 1998 and extending the cost of assets to a
longer period of time, which helped reduce its yearly expenses. The company was also able to
reduce its yearly expenses further by classifying the operating expenses as capital expenses.
The reason for failure of Washington Mutual was largely due to the excessive approval of
mortgages without checking the income of the clients. These risky loans helped in quickly
increasing the company's profits, but this high-risk strategy eventually led the company to
bankruptcy.
The other contributors of the Great Depression 2008 were also the accounting risk
instruments such as the CDs. When companies, such as AIG were selling these CDs, they
were engaging in legalized gambling without any regulatory check and control. This
eventually resulted in AIG almost declaring bankruptcy as these commitments were not
backed by money.
The article further argues that the auditors need to do thorough investigation on cases such as
Madoff, and need to do a better job. A report by the Public Company Accounting Oversight
Board highlighted the issue that the auditors are not sufficiently checking the accuracy and
transparency of companies' accounting practices and financial statements.
The article concludes by stating that eventually accountants would be seen as people who
would be willing to do anything for their clients. The purpose of the accountants should not
be to please its clients, rather they should work for the society by ensuring that the
companies' financial statements are transparent and accurate, and they are using honest
measures to ensure the accuracy and transparency.