Management at Arthur Andersen made an ethical issue when they asked auditors to not only audit financial statements but to sell consulting services as well. An auditors role is to "maintain independence from the firms they audit" (Parino, 2012), so that they can maintain a firm's financial statements are accurate. When Arthur Anderson asked its auditors to sell consulting services in a combined role, this made it so auditors were not being completely objective in their auditing practices.
Arthur Andersen made the mistake to combine auditing and consultants in the same role. Due to this the same employees that were making profit for the company were alson auditing finances. Any mistakes or discrepancies made could be corrected and/or disregarded, therefore, breaking the integrity of the firm. Managers and employees, especially the auditors that were questioning this practice should have spoken up early on before the combined role was implemented.
Parrino, R., Kidwell, D. S, & Bates, T. W. (2012). Fundamentals of Corporate Finance (2nd ed.). Hoboken, NJ: Wiley.
Sole Proprietorship
A sole proprietorship is good type of business structure for a small business that does notrequire large financial and capital needs. It is the most common form of business and the simplest to start. The owner is held personally responsible for all debts and liabilities of the business. In a sole proprietorship, taxes on income from the business are filed as part of his or her personal income tax return (Film Media Group, 2011).
Advantages
· The sole proprietor has control and decision-making power over the business.
· Easy and inexpensive to create and operate.
· The sale or transfer of the business can take place at any time.
· Taxes filed on personal income taxes.
· Few business requirements depending on the state in which the business operates.
Disadvantages
· The sole proprietor is responsible for all the debts of the business.
· The sole proprietor is liable for any acts committed by employees of the business.
· All responsibilities and business decisions fall on the sole proprietor.
· Limited financing options.
Partnership
Partnerships are formed by two or more individuals via a written agreement. Partners are equally responsible for all aspects of the business and if a partner decides to leave the business the partnership will end. (Film Media Group, 2011).
Advantages
· Partners share responsibilities, debts and liabilities
· Capital needed to start a business comes from the partners
· Shared Management and responsibilities
· Business can still continue if a partner decides to quit.
· Taxes are reported on the each partner’s individual tax return.
Disadvantages
· The partners are responsible for all the debts and liabilities of the business.
· Possibleissues regarding division of responsibilities
· Possible disagreements with business decisions.
· Financing options are limited
Limited Liability Corporation
An LLC“structure combines the benefits of ownership with the personal protection a corporation offers against debts and judgments. One or more people can form an LLC, a business owner can either choose to file taxes as a sole proprietorship/partnership or as a corporation”(Business structure, 2006, p.62). An LLC can consist of one individual, two or more individuals, multiple corporations, or multiple LLC's. LLC structure is best suited for your start-up firm as per the information presented. limited liability protection of a corporation and the operational flexibility and tax efficiencies would be advantages provided by the same. Even though, this is a more expensive form of business to set up and maintain than a sole proprietorship, funds would be less controlled if you think about to taking on members.
Advantages
· Limited liability.
· Taxed like a partnership
· Profit sharing
· Ownership is transferable
Disadvantages
· Expensive and difficult to start.
· Regulating laws are not well developed and vary between state to state
· Need to have a well written and detailed operating agreement.
Corporation
The corporation is not only the most complicated but also the most costly structure to organize. The structure has state precise requirements for the filing as well as approval of the articles of incorporation. It enjoys distinct identity from its members and a perpetual succession which makes it continue for even if its shareholder goes off. The ability to generate capital through shareholders and limited liability protection add to the advantages of the corporation. However, a chief disadvantage is the complication and higher fees connected with the formation as well as annual documents filings (Film Media Group, 2011). C-corporation and S-Corporation are the major types of the same. The number of shareholders is the basis of difference between the two. As far as tax implications are concerned, a C-corporation incurs double taxation as it files income tax at the corporate level, and the shareholders file taxes on the dividends received (“Corporations,” n.d.). On the other hand, the S-corporation passes the income as well as losses on the shareholder’s personal tax returns, escaping corporate taxes (“S Corporations,” n.d.).
Advantages
· Limited liability protection
· More financing options
· Shareholders have no personal liability
Disadvantages
· Costly and Difficult to start.
· A lawyer is necessary to hire due to specific laws regulating corporations
· Corporations are a taxable entity and can be double taxed