Adelphia Communications scandal
Adelphia Communications Company was a television cable company whose headquarters centered in Coudersport, Pennsylvania. It ranked as the fifth most prestigious cable companies in United States. John Rigas is the founder of the company. The company was highly respected until an infamous scandal ensued following claims of bankrupt in 2002, at which time its headquarters relocated to greenwood Village, Colorado. According to Jefferson (2007), after the ensuing controversial legal proceedings ended, the company’s assets were liquefied. Time Warner Cable acquired most of the company’s assets in ...view middle of the document...
Similar accounts spread across many years of the company’s existence. According to the report by Grant and Nuzum (2002), the company further borrowed money that they never paid back. In attempts to hide the fraudulent acts, Rigas family withheld reports of the money they siphoned from the company from the company’s financial statements.
The family realized that they needed to produce financial statements that accounted for the large sums of missing funds. Therefore, they inflating the company’s earnings falsified its operation performance and concealed the family’s self-dealings in bid to avoid raising Wall Street’s and shareholders suspicions. They fraudulently increased Adelphia’s routine operational expenses to cover for the funds wrongfully acquired. As the scandal intensified, John Rigas resigned from Adelphia alongside his three sons, Tim, Michael and James. The scandal escalated until John Rigas and one of his sons, Timothy, were arrest and prosecution of fraud. The court found them guilty.
Ethical issues arising from the incident
Several ethical issues emerge from Adelphia scandalous incidence. An organization’s management is the custodian of the company’s ethical standards (Lowenstein, 2004). According to conventional corporation’s ethical conduct guidelines, organization’s executives and managers should conduct themselves in an ethically acceptable manner. Considering Adelphia’s scandal, two main ethical issues involving the company, Rigas family and Deloitte present. The first key issue concerns Deloitte, the external auditor to the company. The second issue concerns the conduct or activities performed by Rigas family.
The first ethical issue
A company’s external editor is mandated with assessing a public company’s ability to accurately institute internal financial reporting structure and systems as well as evaluating the company to ensure that that there are no loopholes that mischievous individuals can use to fraud the company (Lowenstein, 2004). Shareholders and the public place their trust on the external auditor in revealing mischievous activities that take place in a company. In Adelphia Communication Corporation context, the shareholders and the public trusted Deloitte. They believed that Deloitte could and would evaluate Adelphia’s operations, identify and report suspicious activities perpetrated by the company. According to investigations, a number of warning signs could have notified Deloitte of the fraudulent activity at Adelphia. Therefore, Deloitte was either incompetent in performing its duty or it out-rightly falsified its report. Considering its reputation and ensuing investigation, the latter is true. Based on AICPA professional conduct code, Deloitte failed in its duty because it did not conduct itself in the public’s interest. Instead, it gave false audit reports of the company in favor of Rigas family.
Second ethical issue
The second ethical issue surrounds the company’s executives, specifically Rigas...