Financial Services and Ethics, a case study on Carillion

Running head: FINANCIAL SERVICES AND ETHICS, A CASE STUDY ON CARILLION
Financial Services and Ethics, a case study on Carillion
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1FINANCIAL SERVICES AND ETHICS, A CASE STUDY ON CARILLION
Executive Summary:
This paper aims at analyzing the case study of Carillion collapse, a big construction company
shut down case, to understand the corporate governance ethics and ethical standards, which
should be maintained in governing a company. Financial accounting firms also play a vital
role in auditing and certifying the financial statements of companies. They also need to
maintain certain professional ethics while delivering their duties. Lastly, the paper concludes
with some valuable recommendations for preventing such a big corporate scandal.

2FINANCIAL SERVICES AND ETHICS, A CASE STUDY ON CARILLION
Table of Contents
Introduction................................................................................................................................3
Establish key information..........................................................................................................3
Ethics that apply to the case.......................................................................................................4
Psychological Egoism............................................................................................................5
Agency Arguments.................................................................................................................5
Ethics that apply to outcomes....................................................................................................6
Precedents and ethical regulations.............................................................................................7
FRC Roles and Responsibilities.................................................................................................8
Degree of impact of different ethical misconducts....................................................................9
External views on the Carillion collapse case............................................................................9
Shareholders...........................................................................................................................9
Customers.............................................................................................................................10
Staff......................................................................................................................................10
Taxpayers.............................................................................................................................10
Recommendations....................................................................................................................10
Conclusion................................................................................................................................11
References................................................................................................................................12

3FINANCIAL SERVICES AND ETHICS, A CASE STUDY ON CARILLION
Introduction
The carillon was one of the largest construction companies in the UK before its
collapse. The company was the second largest construction company in the UK (Plimmer
2018). It had revenues more than 4.4billion sterling pounds (Online-report.com 2019). There
are various weaknesses in the accounting and financial policies of the company that led to the
collapse of the company. The cover of Carillion financial statement dated December 2016
was “making tomorrow a better place” Ironically, within just three months, the company gave
its first profit warning, and it announced 845 sterling pound write-downs and the CEO
resigned (Plimmer 2018). This report paper analyzes the role that financial regulators played
in the collapse of Carillion. The report discusses the role of the bank of England and Pensions
regulator and assesses whether or not the scandal would have been prevented. The CII ethical
model is also used to analyze the ethical situation within the company and makes
recommendations on actions that should be taken to prevent future occurrences.
Establish key information
The collapse of the company resulted in the loss of billions of sterling pounds and
also to the loss of employment. One of the factors that greatly contributed to the collapse of
the company is over-borrowing. Over the eight-year period between December 2009 and Jan
2018, the value of Carillion loans increased from ₤242 million to approximately ₤1.3 billion
(O'Neil 2019). These loans were not used in a productive way by the company and hence it
resulted in the fall of the company. Most of the funds borrowed by the company were not
invested well in profitable opportunities. This is because, while the debt increased by 297%,
the value of long-term assets increased only by 14% (Ford 2018). Aggressive bidding and
accounting also failed the company. Aggressive accounting is the practice where revenue and