Volkswagen: Ethical Issues, Accounting, and Management Analysis

This essay provides an in-depth analysis of Volkswagen, examining its ethical issues, accounting practices, and management structures. The essay begins by outlining the company's profile, including its diverse product lines and market position. It then delves into the ethical challenges faced by Volkswagen, categorizing them into fundamental and complex issues, with specific attention to the emission scandal and its consequences. The role and responsibilities of senior management, including the management and supervisory boards, are thoroughly discussed. The essay further explores the company's internal and external accounting functions, detailing the preparation of financial statements and the significance of managerial accounting in risk management and internal control. Finally, it examines the external accounting functions, including controlling, taxation, and treasury operations, concluding with a summary of key findings and references to relevant sources. This comprehensive overview highlights the interplay of ethics, accounting, and management in the context of a major automotive manufacturer.

Essay

ESSAY WRITING
Volkswagen is a German car manufacturing company headquartered in Wolfsburg,
Lower Saxony, Germany. The company produces different kinds of commercial vehicles
such as car, trucks and provide other services to its customers. It is the largest car
manufacturing company of Europe and aims at becoming the world's largest car maker by the
year 2018. VW products have good brand image in the market such as Bentley, Audi and
Skoda. The present report will discuss ethical issues and the roles as well as responsibilities
of senior managers in the company. Further, both the internal as well as external accounting
functions and the purpose of financial reporting will be identified in this report.
In the complex business environment, all the companies face numerous ethical issues.
Volkswagen develops a code of conduct and the ethics which needs to be strictly followed by
all the individuals (Heron and Belford, 2015). There are two kinds of ethical issues that
Volkswagen Group can face which includes fundamental issues and more complex issues.
Factors such as trust and integrity come under fundamental issues. Integrity is related to the
business idea of conducting business affairs very honestly. It is a business commitment which
states that all the customers must be treated in a good manner. However, level of trust
between business and their customers helps in developing business to a great extent.
Volkswagen face ethical issues when it use illegal software that emits high amount of
nitrogen oxide and even it create negative impact on US environment (Chang and et. al.,
2009). Further, company did not follow the EPA laws and restrictions. Therefore, it has to
pay a high penalty charges and the CEO of the company also resigned.
On the other hand, diversity, decision making, compliances and governance prevails
under the complex business ethical issues. Volkswagen Group recruit diverse workforce for
the operations. Therefore, company can face diversify issues which refers to different culture,
interest, likes and dislikes of the individuals. Thus, VW is required to provide equal
opportunities to personnel in their training and development programme and even it provide
better working environment (Karodia, Suleman and Pekeur, 2015). Further, all the employees
must be respected by others and they should be considered as an important part for the
business. Their contribution must be included in the business success. Decision making issues
are related to ethical dilemma. A problem or situation that Volkswagen Group faces to select
right option between available alternatives is known as ethical dilemma. In such case,
Volkswagen Group is required to determine the ethical issues, collect all the facts by
examining the alternatives and take correct decision (Beke, 2011). In addition to it, VW has
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to comply with all the governmental rules and regulations such as environmental law, safety
requirements and labour law. Ethical issues can be raised if the directors, supervisors and
operatives do not follow these rules.
The management plays a very important role in the organization as they take different
types of business decisions and manage the business operations effectively. Volkswagen
Group has a management board and supervisory Board in the senior management which
manages overall business functions (Hill and Hill, 2012). Currently, the management board
of the company includes seven members. Each and every member has certain functions and
responsibilities. Michael Horn is the CEO of VW group and Matthias Muller is the chairman
of the management board in VW. They are responsible for making effective research and
development, enhancing business production, effective sales and marketing and human
resource management in the organization. However, the other members such as Dr. Javier
Garcia Sanz are responsible for procurement. Frank Witter functional responsibility is to take
decisions regarding finance and control the operations. However, the Chief Executive Officer
for VW credit is responsible for engineering, consulting and financial service business for
VW Group. Dr. Heizmann as a board member is responsible for Group Commercial Vehicles
(Mull, 2012). He is responsible for the production and development of new production
facilities in other area. Andreas Renschler is responsible for commercial Vehicles and
Herbert Diess is responsible for Passenger cars brand. In addition to the management board,
VW supervisory board is responsible for monitoring the management and approving
important corporate decisions. Further, they also appoint the board members. Supervisory
board monitors business operations and takes corrective actions by supervising all the
functions (Epstein, 2012). Therefore, it becomes clear that management board gains
importance for Volkswagen Group success. It helps in developing business and further assist
in business growth to a great extent. VW is able to achieve its target of becoming largest car
manufacturing company in the world.
Volkswagen prepares financial statements to determine business performance. There
are two statements prepared by the company that is income statements and balance sheet.
Income statements are prepared to determine business profitability. However, balance sheet is
prepared to determine the financial position of the business. Volkswagen prepares its
financial statements in accordance with German Commercial code. The main purpose of the
company is to increase value for its shareholders. Therefore, company highlights all the
business activities which help the shareholders and potential investors to analyze the
company's earning capacity. Under the income statements, accountant highlights all business
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revenues and expenditures. However, balance sheet shows the business assets and liabilities.
On contrary, the accountants do not disclose all the unethical business practices and business
scandals (Berlin, 2015). For instance, in case of using illegal software in the vehicles VW has
to pay high amount of penalty to the government. Under the emission scandal, Volkswagen
cheated the emission tests and provided incorrect information to the US regulators. It is the
part of business expenditures and hence it should be clearly disclosed under the financial
statements but the accountant hides this information as it creates a negative impact on the
company's image. Therefore, the lawsuits are not showed in the financial statements.
Under the organization structure, Volkswagen comprises of two divisions’ automotive
and financial service divisions. Automotive division produces passenger cars and commercial
vehicles brands. It aims at producing, selling and developing the passenger cars and other
commercial vehicles such as trucks and buses. On the other hand, financial service division
offer distinct types of services to its customers. It includes financing, leasing, banking and
other insurance services.
There are different types of accounting functions that includes both internal as well as
external functions. The internal functions comprises of managerial accounting and financial
accounting so as to assess the business performance. Volkswagen Group records all the
business transaction and prepares financial statements so as to assess business operational and
financial status. However, managerial accounting function revolves around the risk
management and internal control system. VW is managing operational risk and establishes an
effective internal control system at every business units (Hannemann and Krüger, 2013). It
helps in budget planning and keeps financial control on a regular basis. Under the budget
planning, company set targets and reviews it continuously. Moreover, the company measures
the results of risk elimination to ensure business development. The management of VW
assess the overall risk to the business and manages it through effective planning and
controlling. Further, the company manages the system risks by using different standards.
Each material risk is estimated and the measures are reported. Thereafter, the actual risks
levels will be assessed by the company in order to determine any weaknesses. It helps to take
decisions for rectification purpose. This risk capturing process is showed in the Volkswagen
Group’s annual reporting for accounting purpose. Thus, it is clear that Risk Management
System (RMS) and Internal Control System (ICS) are the accounting part for preparing
financial statements. Both the programmes are designed by VW in order to minimize the risk
of incorrect accounting information (Schmidt, Otto and Österle, 2011). In addition to it,
internal audit system is also structured in VW that helps in measuring various business
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divisions and corporate units. It regularly assesses the implementation of RMS and ICS in the
company. On contrary, VW external accounting functions relates to controlling and financing
operations. The functions are divided into four parts that includes accounting, taxation and
customs, and treasury. The controlling functions advices the business in managing oriented
reporting and target orientation. The accounting and external reporting division is responsible
for preparing and analyzing the monthly financial statement of VW. The taxation and custom
department works as a tax advisor and consultant (Lyon, Möllering and Saunders, 2012).
They does tax planning, analyzing the tax provisions and prepares tax returns. However, the
treasury department is responsible for the company’s financing and liquidity management
from the financial markets. Further, it hedge the risk associated with the foreign exchange
transactions.
Volkswagen Group has a worldwide presence. On the basis of above report it can be
concluded that Volkswagen's management board and supervisory board is responsible for
managing overall business functions. The board members analyses business operation and
examines them so as to take effective business decisions. Moreover, the report described that
under the financial accounting, VW prepares its financial statements. However, under the
managerial accounting the manager's analyse the business risk and establishes an effective
internal control system. However, controlling, financing and taxation as well as treasury
operations prevail under the external functions. Furthermore, the report told that the
management board continuously monitor the business operations that help in taking better
decisions. With the help of this, the business can achieve its set targets to a great extent.
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REFERENCES
Books and Journals
Beke, J., 2011. Comparative Analyses in International accounting information systems.
International Journal of Finance and Accounting. 1(1). pp. 55-83.
Beke, J., 2013. Classification of Accounting Systems. In International Accounting
Harmonization. Palgrave Macmillan US.
Chang, J.C. and et. al., 2009, September. Usability evaluation of a Volkswagen Group in-
vehicle speech system. In Proceedings of the 1st International Conference on
Automotive User Interfaces and Interactive Vehicular Applications pp. 137-144.
Epstein, M.J., 2012. Challenges of governing globally: a strong understanding of the
three distinct corporate governance systems around the world will help managers
conduct business more effectively in other countries. Strategic Finance. 94(1). pp. 27-
35.
Hannemann, F. and Krüger, T., 2013. Assistant Systems in Production. ATZ worldwide,
115(4). pp. 64-67.
Heron, M.J. and Belford, P., 2015. Fuzzy ethics: or how I learned to stop worrying and love
the bot. ACM SIGCAS Computers and Society. 45(4). pp. 4-6.
Hill, A. and Hill, T., 2012. Operations management. Palgrave Macmillan.
Karodia, A.M., Suleman, M. and Pekeur, S., 2015. Investigating the Challenges Facing the
Information Services Teams at Volkswagen Group South Africa. Journal of Research
and Development. 2(4). pp. 5-39.
Lyon, F., Möllering, G. and Saunders, M. eds., 2012. Handbook of research methods on trust.
Edward Elgar Publishing.
Mull, J., 2012. Volkswagen Group China. Abgerufen am. 6(08). pp. 2012.
Schmidt, A., Otto, B. and Österle, H., 2011, February. A Functional Reference Model for
Manufacturing Execution Systems in the Automotive Industry. In Conference on
Wirtschaftsinformatik pp. 302.
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Online
Berlin, F., 2015. VW to freeze promotions due to emissions scandal: report. [Article].
Available through: <http://www.reuters.com/article/us-volkswagen-emissions-savings-
idUSKCN0SI0A020151024>. [Accessed on 24th December, 2015].
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