ISY1000 - Professional and Ethical Practices: SuccessFactors Case

This case study provides an analysis of the “Whistle-blower Claims Accounting Shenanigans at SuccessFactors” scenario, examining the ethical and professional practices involved. It begins by defining professional ethics in communication technology, highlighting the importance of integrity, respect, and diligence. The case study delves into SuccessFactors' alleged accounting irregularities, including the improper writing of multiyear contracts and the reporting of non-GAAP backlog figures. It explores why SuccessFactors was not significantly harmed by these practices and the rationale behind encouraging non-GAAP financial measures. Finally, it recommends measures for management to address the improper accounting of multiplier contracts, emphasizing the need for ethical conduct and transparency within the organization. The report concludes with recommendations for maintaining ethical standards and preventing future accounting irregularities.

Professional and Ethical Practices 1
Analysis on Professional and Ethical practices and “Whistle-blower Claims Accounting
Shenanigans at SuccessFactor” case
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Professional and Ethical Practices 2
Executive summary
The professional and ethical practice is a fundamental aspect to business organizations
and essential in achieving the missions of the organization to lead the professions of investment
globally by a promotion of the highest standards of ethics as well as professional excellence for
the ultimate benefit of the organization and the society at large. High standards of professional
and ethical practice are essential in maintaining the public trust and in financial markets as well
as investment professionals. The Professional and Ethical Practice, since there creation, have
played a critical role by promoting organization members and played the role of measuring the
ethics of professionals around the globe regardless of cultural difference, job functions, and local
laws and regulations. As such all organizations should abide by the codes and are also urged to
notify their employers of this responsibility.
In this report, we seek to analyze the case study in “Ethics in information technology”
about the whistleblower claiming accounting shenanigans at SuccessFactors Corporation.
However, before getting into the case study, it is imperative to explore the meaning of
professional ethics in communication technology. The professional ethics include the principles
and core values that are essential in the work of a particular occupational group as stated by
Reynolds (2015). These codes spur organizations towards acting with integrity, respect,
diligence, competence and an ethical manner with public including clients, prospective clients,
colleagues, and employers in the investment profession as well as other stakeholders in the
global capital market. The codes of ethics enable an organization to use a reasonable care as well
as independent professional judgment when carrying out investment analysis, making
recommendations concerning the investments, taking the investment action as well as engaging
in other activities regarding investment.

Professional and Ethical Practices 3
Table of Contents
Executive summary...................................................................................................................................2
Introduction...............................................................................................................................................4
Case........................................................................................................................................................5
Why SuccessFactors was not hurt by the alleged improper accounting................................................7
Why the organization should encourage the non-GAAP financial measures.......................................8
The measures management team should consider dealing with improper accounting of multiplier
contracts.....................................................................................................................................................9
Conclusion..................................................................................................................................................9
Recommendation.....................................................................................................................................10
Reference list............................................................................................................................................11

Professional and Ethical Practices 4
Introduction
Ethics and professionalism involve the moral issues that arise due to the specialist
knowledge attained by professionals and how the professionals should govern the use of this
knowledge in a particular organization which they work for. The aspect of ethics and
professionalism is comprised of what should or should not be done at work. It also consumes a
better part of a professional’s life (Becher, 2018, pp. 74). Ethics and professionalism are not
only crucial in the field of information technology, but it is also as well a critical aspect in other
fields. Ethical and professional behavior, competence in IT, software skills, certification, and
knowledge are some of the fundamental aspects of ethics and professionalism in IT (Stichler, and
Hauptman, 2009, pp. 36-67). A professional is considered to have ethics and professionalism if
he or she adopts the conducts of all his dealings in the workplace as well as another environment.
This document seeks to explore ethics and professionalism and how they are applicable in the
field of information technology with the help of “Whistle-blower Claims Accounting
Shenanigans at SuccessFactors” scenario in “Ethics in Information Technology.”
Professionalism applies to the manner in which an individual conducts himself or herself
in the workplace and demonstrates loyalty to the organization which he or she works for. This is
a crucial aspect of any organization and has been a cornerstone of Intel’s business (Reynolds
2015). In professionalism, members of the organization must understand and adhere to rules and
regulations and laws of the organization and professional associations governing their
professional activities. For instance, on the off chance that conflict occurs, the members of the
organization must adhere to the more strict laws as well as rules and regulations pertaining to
conflicts. Professionalism laws guide organizations members in market manipulations as well as
material nonpublic information among other areas concerning integrities of capital markets

Professional and Ethical Practices 5
(Murphy, and Sampson, 2016, pp. 309-328; Quinn, 2010, pp.12-15). In general, codes of ethics
and professional practices are there to provide members of an organization with broad ethical
statements for guiding their professional lives and identify appropriate consideration if in any
case, an ethical uncertainty arise.
Case
According to the scenario script, SuccessFactors, an American multinational company
which offers services concerning cloud-based software solution services using the model of
Software as a Service SaaS is compromised accounting shenanigans. The scenario source further
cite that the organization has not been profitable as anticipated as SuccessFactor have been
incurring losses every financial year since it came to be in the year 2001; the company has made
a loss of 12.5 million dollars in 2010 with 231.3 million dollars as an accumulated deficit.
Endeavoring to gain a significant market share in the fast pacing Software as a Service SaaS
technology, the organization release 3.4 million dollars in order to acquire success in its
business.
SuccessFactors showed a significant increase in its backlog in the year 2007. The
organization had a backlog of 90 million dollars in 2007 compared to a backlog of 43 million
dollars in the year 2006, resulting to an increase of 47 million dollars which was considered the
good move by the organization according. However, this significant increase in backlog stopped
showing up in the year 2009, upon inquiry of why the organization stopped generating the figure,
the agency responded that its investors did not consider the figure significant.
Despite the implementation of a 2009 SEC rule that governs the process by which
revenue could be reported on a multiyear contract as claimed by SuccessFactors, in the agency’s
2011 annual report, the organization admits that its accounting controls surfers from a material

Professional and Ethical Practices 6
weakness. Next, to this, the agency’s internal control was no longer effective as of date 31st
2011. This was further confirmed by the organization’s salesperson, the whistleblower who
equally admitted that surely SuccessFactors had some weakness in its internal control since the
year 2009 to 2011.
Information technology has changed people’s living standards. In information
technology, professionals play a critical role in bringing a change to the company and humanity
as a whole. As such, it can be used as a benefit or as a destruction. While cloud computing has
completely changed the manner in which industries buy software, it can be a threat to investors
as some SaaS companies could be tempted to dupe their investors. Determining the right use of
technology is the major role played by ethics (Goodman et al., 2010, pp.77-81). It is required that
IT professionals show a proper code of conduct, good moral, the right attitude and should not
misuse technology. A professional should have self-respect, treat his colleagues and clients with
respect, honesty, perform his or her duties, good communicator, the right attitude, sound
character, and a team player (Dorney, 2012, pp. 12-16).
Analyzing the SuccessFactor’s scenario, the whistle-blower’s ethics and professionalism
attribute, honesty, has helped to identify the weakness in its control system. According to the
scenario, SuccessFactor agency was accused of misleading the accounting procedures by the
whistle-blower. This is not, however, the first time this case is experienced in the organization.
As the scenario script further cites, from 2009 to 2011, the agency’s sales personnel were writing
contracts in an improper way to make the organization look like it has been developing faster
than before.
This stems from how SaaS organizations book revenue. When a new customer is
assigned by a SaaS organization, the customer normally signs for a multiyear deal which is

Professional and Ethical Practices 7
normally three years. According to Graham, Hanlon, and Shevlin (2011, pp. 137-185), GAAP
accounting rules allow the organization to recognize its revenue only after performing the
services. Companies offering cloud-based services, however, want to show investors that for any
new client sign in, much more money is generated under the length of the contract which is
reported as a non-GAAP backlog figure (Isidro, and Marques, 2013, pp.289-317). As evident in
the case study, the accounting controls of SuccessFactors were so slack that salespersons could
write existing multiyear contract every year which made them to a commission on new contract
every year, despite the customer being a regular client. This also meant that when the agency
filed documents to the SEC, big backlog was reported and many new clients that the organization
did not have initially.
Why SuccessFactors was not hurt by the alleged improper accounting
Through the acquisition, the agency made a significant step to “cloudify” software
portfolio with the 3.4 million dollars acquisition of the darling human resource software. This
portrays the significant roles of IT professionals in the agency’s IT department which is required
of professionals. Given the fact that SuccessFactors is an information technology organization
that provide software services to customers. The organization has to keep the pace of information
technology. Along with this rationale, the agency needs a professionalism in order to provide the
best quality services to its consumers and satisfy their customers’ needs (Avery et al., 2012,
pp.1310-1319). It is professionalism that will provide a platform for ethical trade which in return
incline profit, productivity and high market value in a business organization.
The purchase of SuccessFactors was premium to the agency’s closing stock. According
to the organization, a considerable increase was recorded in the number of customers across over
168 countries that the organization served. As such, the company recorded growth in its revenue

Professional and Ethical Practices 8
in the third quarter of the year 2011. Moreover, while the organization makes an attempt to
prosper in cloud-based services organically, the agency cannot as well afford to miss the
opportunity to buy its way into the market at the same time. This is because SuccessFactors is
cognizant that Software as a Service is not just meant for small business. SuccessFactor’s rival
Oracle had just acquired another cloud-based software organization and advanced its technology
which cost the organization 1.5 billion dollars (Marston, Li, Bandyopadhyay, Zhang, and
Ghalsasi, 2011, pp.176-189). The trend of buying a way into Software as a Service market that is
associated with big organizations is a trend that won’t end soon as its outcome is handy.
SuccessFactors was not big on the acquisition by SuccessFactors in the past as stated in the case
study. However, the company has to take a new move into the digital world to get the
organization into mobile, social and cloud; the cloud is the core of future growth of the
organization. Therefore I can say that no one was hurt by the acquisition but instead, the
organization benefited from the acquisition.
Why the organization should encourage the non-GAAP financial measures
The non-GAAP measures are essential as they help in understanding and comparison of
the result in the accounting to calculate bonus payment for evaluating the financial performance
of an organization (Kraft, 2014, pp.641-674; Doyle, Jennings, and Soliman, 2013, pp.40-56).
Due to the fact that organizations review cash flow generated from its operations, the non-GAAP
measures are meaningful to the investors as it is a necessary component of the company’s
operation.
Like anything, the use of non-GAAP measure also has its limitations. All items of income
and expenses are not reflected by the non-GAAP measures (Seetharaman, Wang, and Zhang,
2013, pp.17-37). As such various organizations have prepared the non-GAAP measures

Professional and Ethical Practices 9
according to GAAP. Therefore, it is important that SAP implement the non-GAAP financial
measures but not as a substitute but rather to complement the GAAP measures.
The measures management team should consider dealing with improper accounting of
multiplier contracts.
From the year 2009 to 2011, SAP’s salespersons were improperly writing contracts in
order to make the organization to look like its growth increase at a faster rate than it was. These
irregularities can be eliminated by the organization taking appropriate measures including but not
limited to do a periodic check of all contracts, revenues, customer numbers as well as other
important factors to avoid any miswriting or fraud.
The company can also uphold IT ethics and professionalism for not only its employees but also
clients to avoid the misuse of information technology and ensure that rules and regulations are
followed by employees. SAP should also consider random sampling to avoid frauds. Most
importantly, the company should encourage periodic training and structure other measures to
strengthen the ethics and professionalism of its employees.
Conclusion
In conclusion, this document has analyzed ethics and professional practice with the help
of “Whistle-Blower Claims Accounting Shenanigans at SuccessFactors” case study in “Ethics in
Information Technology.” It can be concluded that ethics and professional practice is a
fundamental aspect of the organization’s operations. It can be noted that the whistle-blower does
not engage himself in improper writing of contracts like fellow organization’s salespersons, and
it is through him that it is known that the organization is under a serious threat.

Professional and Ethical Practices 10
Recommendation
On basis of the above analysis, recommendations can be made:
 SuccessFactors should be careful when it comes to revenues and customer numbers.
 The agency should also consider training its employees to strengthen the professionalism
and ethics of the employees (Board, 2014, pp. 3-9).

Professional and Ethical Practices 11
Reference list
Avery, A.J., Rodgers, S., Cantrill, J.A., Armstrong, S., Cresswell, K., Eden, M., Elliott, R.A.,
Howard, R., Kendrick, D., Morris, C.J. and Prescott, R.J., 2012. A pharmacist-led information
technology intervention for medication errors (PINCER): a multicentre, cluster randomised,
controlled trial and cost-effectiveness analysis. The Lancet, 379(9823), pp.1310-1319.
Becher, T., 2018. Professional practices: Commitment and capability in a changing
environment. Routledge, pp.74
Board, B.A.C., 2014. Professional and ethical compliance code for behavior analysts, pp.3-9.
Dorney, R.S., 2012. The professional practice of environmental management. Springer Science
& Business Media, pp. 12-16.
Doyle, J.T., Jennings, J.N. and Soliman, M.T., 2013. Do managers define non-GAAP earnings to
meet or beat analyst forecasts?. Journal of Accounting and Economics, 56(1), pp.40-56.
Goodman, K.W., Berner, E.S., Dente, M.A., Kaplan, B., Koppel, R., Rucker, D., Sands, D.Z.,
Winkelstein, P. and AMIA Board of Directors, 2010. Challenges in ethics, safety, best practices,
and oversight regarding HIT vendors, their customers, and patients: a report of an AMIA special
task force. Journal of the American Medical Informatics Association, 18(1), pp.77-81.
Graham, J.R., Hanlon, M. and Shevlin, T., 2011. Real effects of accounting rules: Evidence from
multinational firms’ investment location and profit repatriation decisions. Journal of Accounting
Research, 49(1), pp.137-185.

Professional and Ethical Practices 12
Isidro, H. and Marques, A., 2013. The effects of compensation and board quality on non-GAAP
disclosures in Europe. The International Journal of Accounting, 48(3), pp.289-317.
Kraft, P., 2014. Rating agency adjustments to GAAP financial statements and their effect on
ratings and credit spreads. The Accounting Review, 90(2), pp.641-674.
Marston, S., Li, Z., Bandyopadhyay, S., Zhang, J. and Ghalsasi, A., 2011. Cloud computing—
The business perspective. Decision support systems, 51(1), pp.176-189.
Murphy, M.J. and Sampson, A., 2016. Ethics of Professionalism. In Ethics and Professional
Issues in Couple and Family Therapy (pp. 309-328). Routledge.
Quinn, M.J., 2010. Ethics for the information age. Addison-Wesley Publishing Company, pp.12-
15.
Reynolds, G. W. (2015). Ethics in information technology (5th ed.), Cengage Learning, Boston.
Seetharaman, A., Wang, X. and Zhang, S., 2013. An empirical analysis of the effects of
Stichler, R.N. and Hauptman, R., 2009. Ethics, information and technology: readings.
McFarland & Company, Inc. Publishers, pp. 36-67.