III. Think of a caption for the cartoon; substantiate your choice.

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III. Think of a caption for the cartoon; substantiate your choice.

IV. Take part in the round-table discussion on the following issue:


The Ins and Outs of Ethics


1. How do you define business ethics?

2. Can business ethics be taught?

3. Should a company be looking for ethical people when it is doing its recruiting?

4. Is it possible to gauge a person’s ethical mindset in an interview?

5. Why should companies or employees worry about doing things ethically?

6. Can you give an example of a situation in which an employee could do something that might not be ethical, but isn’t against the law?

7. Can being ethical increase a company’s bottom line?

8. What are the most common ethical problems that managers face? (resolving an issue if an employee has a problem or if a customer has a problem; the climate and the way in which people are dealt with; conflict of interests; what it means being honest with a customer; what’s puffery and what’s a lie?)

9. What are some of the main reasons that people do unethical things? Can it happen because employees become too loyal to a narrow goal in the organization that they forget the larger world and cut corners?

10. Should there be a code of conduct in every organization and on what basis can it be elaborated?




Chapter X

Accounting Profession Faces

New Challenges

Unit 21

Accounting Gets Radical

The green-eyeshade gang isn’t measuring what really matters to investors.

Some far-out thinkers plan to change that.

By Thomas A. Stewart


In the FORTUNE 500 are thousands upon thousands of statistics that reveal very little that’s meaningful about the corporations they purportedly describe. At least that’s the verdict of a growing number of forward-thinking market watchdogs, academics, accountants, and others. Convinced that accounting gives rotten information about the value and performance of modern, knowledge-intensive companies, they’re proposing changes that would be earthshaking to the profession - and a big deal to every else too.

It’s about time. For years scholars, investors, and managers have grumbled that Generally Accepted Accounting Principles (GAAP) generally do an unacceptable job of accounting for the principal activities of Information Age companies. In Relevance Lost: The Rise and Fall of Management Accounting, H. Thomas Johnson and Robert S. Kaplan write: “Corporate management accounting systems are inadequate for today’s environment,” citing technological change, globalization, and expanding information processing as three reasons old charts ofaccount aren’t useful. That lament dates from 1986, before the Internet rose and the Berlin Wall fell, when men were men and P/Es were ten.

Since then it’s only become clear that accounting is “lousy” (McKinsey Chairman Rajat Gupta’s word) at describing today’s most important assets and activities – intellectual capital and knowledge work. The value of R&D, most software, brand equity, or the user base of an e-tailer slips through its fingers. In January 2000, Federal Reserve Board Chairman Alan Greenspan complained that accounting wasn’t tracking investments in knowledge assets and warned, “There are going to be a lot of problems in the future.”

Actually, problems are here now. Former SEC Chairman Arthur Levitt told the Economic Club of New York, “As intangible assets grow in size and scope, more and more people are questioning whether the true value – and the drivers of that value – are being reflected in a timely manner in publicly available disclosure.”

Make no mistake: This is not just theoretical. It costs investors money – perhaps you, dear reader, among them. We’re not talking fraud here – we’re talking irrelevance, with the result that investors are in the dark and managers operate by guess and by gosh. At the very least it reduces prosperity by distorting flows of investment capital, which should go where it can be most productively employed.

Financial Accounting Standards Board , the profession’s vestal virgins,[2] says that accounting fundamental purpose is to “provide information that is useful…in making rational investment, credit, and similar decisions.” By that standard, it flunks. Take a big, obvious question: What’s a company worth? If the books tell a story investors find useful, then a company’s market value should roughly (not precisely, because the market looks forward and the books back) correlate with the value accountants ascribe to it. It doesn’t: Arthur Anderson consultants Richard Boulton, Barry Libert, and Steve Samek compared market value with book value for 3,500 U.S. companies over a period of two decades. At the beginning, in 1978, the two were pretty well matched: Book value was 95% of market value. Now they’ve gone astray, every one to his own way. Twenty years later, book value was just 28% of market value. Investors simply don’t value what accounts count. Not even earnings and cash flow numbers seem to help investors. Baruch Lev, a professor of accounting at the Stern Business School at New York University, has found that changes in earnings and cash flow have trivially weak relationships to changes in market capitalization.

Lev is one of several leading accountants mapping paths from GAAP to genuinely informative accounting procedures. He’s in the more radical camp. He breaks with accountingtradition, which infers value by adding up spending and other transactions. His different approach - a breakthrough or a breakaway, depending on whom you ask – allows him to infer a dollar value for almost any company’s intellectual capital from its performance.

A less radical group recognizes that some items currently expensed should really be capitalized but stays within accounting’s transaction-based tradition.Prominent among them is Robert A Howell, visiting professor at the Tuck School at Dartmouth and an authority on the changing role of finance and accounting. To Howell, the “big three” financial statements – income statement, balance sheet and statement of cash flow – are about as useful as an 80-year-old Los Angeles road map. Their very logic is outmoded, Howell argues.




1. Generally Accepted Accounting Principles:общепринятые принципы и правила

бухгалтерского учёта (США)

2. Financial Accounting Standards Board:Совет по стандартам финансового учёта



1. chart of account план счетов

2. brand equity ценность, значимость бренда

3. e-tailer виртуальная компания,

осуществляющая розничную

торговлю по Интернету

4. book value балансовая стоимость

5. balance sheet баланс (компании)

6. income statement (UK –profit and loss account) отчёт о прибылях и убытках

7. statement of cash flow отчёт о движении денежных




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