Key Points in the Article:

The effects of misleading financial information are tremendous. In Saudi Arabia, MMG (Mohammad Al Mojil Group) stock was offered in stock market at 20 dollars and few years later it is 30 cents while Etihad Etisalat, known as (Mobily) was nearly 20 dollars in 2012 and it reaches nearly 5.3 dollars on 12th January 2017. Managers sometimes try to get maximum benefits by presenting false information related to the financial performance and financial position of companies.

Recently scandals shed lights about the applications of corporate governance rules and whether accounting is a tool for decision making that help investors or it is enhancing greed of management by presenting misleading financial numbers. Fraudulent financial information can impact users of financial information to make wrong financial decisions.

The devastating results of Enron improprieties affected employees jobs, retirement funds as well as complete destruction of share values. Subsequently, the former Treasurer, Ben Glisan, pled guilty to criminal conspiracy and for which he received a prison sentence (Enron, 2006). Mr. Fastow, CFO, also pled guild to fraud, money-laundering and conspiracy for which he received a 10-year prison sentence and was forced to pay $24 million. Roughly twenty other Enron executives have been charged with felonies including Kenneth Lay, former CEO.

Corporate financial scandals have negative impact on the value of organizations that are committing fraud.

Questions: 3 Marks

The Author states Strengthening corporate governance as well as more restriction to managers will help in regaining confidence of stakeholders.

1. Explain why ethics is an appropriate topic in the study of corporate finance?