Ethics play a role in everyday business. Company executives attempt to build a profitable organization but unethical decisions lead to the demise of organizations because of greed and power. Penn Square Bank and Dow Corning both made decisions in their business that started out making millions of dollars but in the end cost the companies more than possibly imagined. Because of the unethical decisions made by both companies they acquired large losses of money by one filing bankruptcy, and the other closing down. Not only were there large losses of money for both companies, but the loss of reputation as well.
Penn Square Bank
What were the ethical pressures on the firm concerning documentation, credit extension, and revenue recognition that lead to the final collapse? What should have been done to reduce or offset these pressures?
The ethical pressures on the firm concerning documentation, credit extension, and revenue recognition leading to the final collapse of Penn Square bank is the bank could not fund the loans they were negotiating. According to generally accepted accounting principles, revenue and corresponding expenses should be recorded or matched in the same accounting period (The Houston Chronicle, n.d.). Penn Square accurately recorded transactions occurring in the current accounting period but failed to fully record expenses incurred as costs associated with those transactions in the next accounting period. The effect of this error was overstatement of net income of the company in the period in which the transactions were recorded, and understated net income in the period the expenses were reported. The bank was under pressure to increase its capital. The following paragraphs answer the above questions.
Penn Square Bank was a small commercial bank in Oklahoma City which made high-risk financial loans during the late 1970s in the oil boom. The bank collapsed during the early 1980s because of their financing practices. The bank overestimated...