Monthly Archives: September 2014

Just last week in our class about financial accounting we learnt about the importance and relevance for good accounting principles. Over or understating the assets or liabilities of a company usually corresponds to major repercussions. Early this week Tesco released that it had mistakenly over estimated its profit forecast for the first half of the year by 408 million dollars. This accounting error that Tesco made dropped the share prices 11.6 % in one day to a year to date low of $194 per share.Tesco said the profits overstatement was “principally due to the accelerated recognition of commercial income and delayed accrual of costs”. This means that Tesco wrongly reported the timing of the accounting payments between the suppliers. This crippling accounting error further shows the importance of correctly stating the revenue of the company properly and how devastating a mistake can be to the stock valuations.  In response to the error Tesco fired four high level executives and launched an internal investigation as to determine the impact on the full year’s results. However, such precautions will not stop Tesco from generating a 3.6 billion dollar loss on the stock valuation and from losing the trust of numerous investors.

Ethics are defined as the moral principles that govern a person’s or group’s behavior. In order to make reasonable choices and decisions in a business environment a strong set of ethics are critical. Similar ideas could be found in an article that Bryan Borzykowski posted for the BBC called, “The Slippery Slope of Getting Away With Small Stuff”. Borzykowski states how “ethical lapses come about because of management, and through lack of ethical guidelines”. The most globally known example of lack of ethics comes from the CEO, Jeffrey Skilling,  of the former fortune 500 company Enron. Jeffrey Skilling demonstrated a lack moral ethics which helped the other top executives believe what they were doing was ethically right. Directly due to Skilling’s negative ethical leadership thousands of employees not only lost their jobs, but they lost their life savings as well. The executives at Enron failed to have strong ethics behind them, and thus ultimately led them down the “Slippery Slope” that they had created. The article goes on to say how “In a lot of companies ethics are un spoken of”. According to Edward Freeman a business that violates the rules of trade and ignores corporate responsibility is a business that is “in decline”. This such behavior needs to change in order for companies to create a positive brand image and a positive employee, customer feedback. Although the primary goal of a business or corporation is to provide its shareholders with positive returns, it also has a responsibility to the many stakeholders in the corporation to make their profits within the rules and regulations of a free market.