Please take note of the requirement that you perform research to select a recent accounting fraud or ethics case from the last five years. Note that Enron, Worldcom, Tyco, and others from the 15 to 20

ACC 696 Final Project

I.Background 2

II.Ethical Violations 3

III.Theoretical Models 7

IV.Influences and Standards 8

V.Ethical Framework 9

VI.References 11

1. Background

The companies whose accounting ethical Scandal will be analysed in this case is Valeant Pharmaceuticals which is a Canadian pharmaceutical company which changed its name to Bausch Health to remove itself from the accounting scandal that discovered in 2015 regarding the mismanagement of its acquired US subsidiary company Philidor Rx Services. This scandal leads to one-year imprisonment of Ex-CEO of Valeant Pharmaceuticals who was leading the company in the time when this scandal was happening and Philidor Rx Services executives at that time who found to be known about this mismanagement and involved in it.

Under this scandal, Valeant Pharmaceuticals not uses its influence in its US subsidiary company not only to overstate the financial performance of Philidor Rx Services but also uses the operation of Philidor Rx Services which was a specialty Pharmacy to increases Valeant Pharmaceuticals revenue. This increase in the revenue happened by using manipulating the customers of Philidor Rx Services to buy overpriced lifesaving drugs of Valeant Pharmaceuticals when there was a cheaper alternative available in the market.

The reason for choosing this accounting ethical case study is to be analyse the different immoral ways chosen by the company to increase its financial performance and also to increase their stock prices by showing inflated financial performance so that to become more alert about which point should an investor look into before investing in a company which has shown abnormal financial growth in a small period. Also, the one executives of the two companies used a shell company for money laundering in this case.

This company has been chosen as there are two main ethical violated in this case are manipulation of the recording of the financial statements and also price abuse of the consumers which is deeply violating the consumer’s interest. Therefore, the ethical issues, in this case, can be qualified as earnings mismanagement, fraud and poor corporate governance.

1. Ethical Violations

The main participants of the scandal involving Valeant Pharmaceuticals are Ex-CEO of Valeant Pharmaceuticals named J. Michael Pearson whose was removed from his position after both the management and investors of the company largely blames him for this scandal of the company. Although according to the verdict of U.S. District Judge Loretta Preska in Manhattan, the main participants are Garry Tanner who was a former executive of Valeant Pharmaceuticals and Andrew Davenport who was chief executive of Philidor Rx Services for fraud and money laundering. This two personnel were sentenced to one year in prison and also ordered to forfeit $9.7 million by the court U.S. charging former (CBC News, 2020). Also, to an extent PricewaterhouseCoopers can be found to be participants as it failed to report these irregularities in time in the company when it happened as the independent auditor of the company.

There are significant ethical responsibilities of a professional accountant to both internal and external stakeholders of the business regarding the financial reporting process, and these ethical responsibilities will be discussed here. The first ethical responsibility is to identify and assess whether there is any financial manipulation of the recording of the financial statements of the business which can mislead different stakeholders especially stakeholders like lenders or investors about its decision in the company. The second ethical issue is to identify any irregularities seen in the company and include that fact in the auditor report. The third ethical responsibility is to gives its fair and unbiased opinion about the different financial aspects of the company in its report. These ethical responsibilities were not fulfilled by professional accountants in this case.

One of the internal stakeholders who was mainly impacted by this scandal is its shareholders whose took the wrong investing decision about the company from the manipulated financial statements recorded by the company which lead to them incurring a high loss from the share price of the company fell significantly when this accounting scandal was exposed. On the other hand, two external stakeholders are impacted by the inefficiencies of the professional accountant in this case which are customers and lenders as under this lenders has give high debt to the company from reviewing the inflated revenue of the company and customers purchasing overpriced drugs of the company whose overpricing should be identified by auditor as irregularities in the company.

There are several AICPA Codes of Professional Conduct were violated in this case which will be discussed here. The first code of professional conduct violated is independence which is highly important when the professional accountant is analysing the different financial aspects of the company to form an opinion about these aspects of the company, and it is important to ensure that the opinion which is given is not manipulated and biased in any way. A professional accountant should be independent both in fact and in appearance to increase the reliability of the financial statement among the investors and other stakeholders and fulfil both its professional responsibilities toward the investors whose interest should be its priority (Avdeev, Nassiripour & Wong, 2019).

No, the main participants in this accounting scandal did not adhere to moral and ethical principles. Garry Tanner who was a former executive of Valeant Pharmaceuticals and Andrew Davenport who was chief executive of Philidor Rx Services was found to be guilty of money laundering and fraud charges in which they cheated customers by selling them overpriced drugs and used a shell company to divert Valeant Pharmaceuticals in their own pocket. Also, the evidence against Ex-CEO named J. Michael Pearson not adequately found in these aspects but many feel that he knew about this scandal and those ignore it. Also, PricewaterhouseCoopers failed to some extent in the moral parameter as it failed to give an unbiased and accurate view to the users. All these make these participants moral character questionable, and there is definitely a lack of honesty found in them.

This shows the importance of integrity in the current business world among as in this case, all main participants for their personal gains ignore the integrity in their professional conduct as it is alleged that J. Michael Pearson who pay significantly related to stock price and financial performance of Valeant Pharmaceuticals ignored these manipulations to increase the stock price of the company which made him highest-paid CEO at that time. Also, the two accused executive diverted the company fund in their own account, and this again means there was also a lack of integrity in their part. The integrity of PricewaterhouseCoopers can also be questioned as they also failed to give an unbiased opinion about the financial statements of the company.

The main stakeholders including the professional accountants, in this case, failed to maintain their objectivity as the price irregularities of products of Valeant Pharmaceuticals, inflated revenue and money laundering processes were overlooked by both professional accountants who are PricewaterhouseCoopers by the influence of the management of Valeant Pharmaceuticals.

The legal implication of this case include Garry Tanner who was a former executive of Valeant Pharmaceuticals and Andrew Davenport who was chief executive of Philidor Rx Services has to sentenced to one year in prison and ordering forfeiting of $9.7million for money laundering case. The social implication of this accounting scandal is that Valeant Pharmaceuticals lost a significant proportion of goodwill among its customers and investors. The economic implications that have to be faced by the two companies include Valeant Pharmaceuticals stock price keep on constantly decreasing until it removed J. Michael Pearson as their CEO and Valeant Pharmaceuticals cut its ties with Philidor Rx Services. Also, Valeant Pharmaceuticals has not till now recovered from this scandals as its sales keep on decreasing years after years and it has to sell, a large number of its investment to be able to face the financial crisis created by this scandal. The specific code of conduct of Valeant Pharmaceuticals that form the core value of the company which were violated in this scandal is accountability and integrity by these money laundering, fraudulent and poor corporate governance activities of the company.

1. Theoretical Models

Deontology is the ethical models found to be violated in this case. The rationale behind identifying this ethical model is that this model told not only to bring good result, but the decisions should be taken in good intentions and as the intentions of the main participants are found to manipulate different stakeholders in the market for the decisions taken by them in this case; therefore, this ethical models found to be violated in this case (Meyers, 2018).

The different ethical models better the decision-making process and the outcomes in different ways. For example, under Deontology, the emphasis is not only given to the good result but also ensures that different decisions resulting in different decisions are taken out of good intentions. This ethical model leads to the decisions that are made with good intention and its outcome is good corporate governance. On the other hand, Moral Relativism tells to judge a decision good or bad taking into cultural consideration of the society in which the company is operating. This enhances the decisions making as management take into account the interest of the local community, and this outcome is the better engagement of the local community with the company (Li, 2019).

1. Influences and Standards

The impact of the regulatory activities has on the ethics of this case has been negative in this case as Valeant Pharmaceuticals acquired companies with drug patents of the company with no or less competition and then charged high price for it but this strategy was overlooked for a long time by the regularities bodies who should have stop these acquisition which are highly against the interest of customers.

The two accounting standards under GAAP which have been misused by Valeant Pharmaceuticals are revenue recognition standard under GAAP and Fair value Consideration under Business Combinations under GAAP to show inflated value of revenue and value of their acquired company which helped the company in financial statement manipulation in this case (McKenna, 2020).

To a certain extent, some of the employees of Valeant Pharmaceuticals used tracking solutions to ensure that the Philidor is prescribing its drugs to the customers of it. Although, the influence of the technology is negative in this case but in the current business world, the effect can be both negative and positive. For example one of the areas in which the emerging help in both conducting unethical activities and also detecting these unethical activities are the security of the company process which is getting better with emerging technology but also increasing the chances of hacking.

1. Ethical Framework

The ethical framework of Deontology is the proposed ethical framework that is suggested for setting appropriate standards of conduct for professional accountants producing a higher level of ethical values and decision making as the intentions of all main participants including professional accountants found to be questionable in this case. The management should distance itself from the working of professional accountants to ensure that the process is not influenced in any way and only when it is utmost necessary or necessary for reviewing only then a management opinion should be taken in a limited capacity. All the internal related information, market information and clear code of conduct information that is related to the decision or the process should be available to the employees under this framework to help make them more ethical choices.

Yes, the better internal controls in revenue recognition or fund management or pricing process of Valeant Pharmaceuticals could have been utilized to produce more ethical behavior.

Yes, plan by corporate governance could have been an appropriate vehicle for delivering these internal controls to encourage ethical behavior as it can be seen that there were too much interferences of the executives in the operation of holding and a subsidiary company in this case which lead to this accounting scandal. Therefore, by ensuring transparency and limited influence of the executives in the operations or management of the company, this accounting scandal could have been avoided.

1. References

Avdeev, V., Nassiripour, S., & Wong, H. (2019). Case Study: Ethical Considerations of an Accounting Professional. Journal of Leadership, Accountability and Ethics, 16(2).

CBC News. (2020). Retrieved 11 February 2020, from https://www.cbc.ca/news/business/valeant-philidor-executives-charges-1.3855112

Li, Y. (2019). Moral plurality, moral relativism and accommodation. Asian Philosophy, 1-16.

McKenna, F. (2020). Valeant uses rare accounting maneuver for acquisitions that cushions income. Retrieved 11 February 2020, from https://www.marketwatch.com/story/valeant-uses-rare-accounting-maneuver-for-acquisitions-that-cushions-income-2016-02-11

Meyers, C. (2018). 8 Deontology. Communication and Media Ethics, 26, 139.