Corporate Volkswagen Emission Scandal

Question: Discuss about the Corporate Volkswagen Emission Scandal. Answer: Introduction: In September 2015, Volkswagen was alleged by the Environmental Protection Agency of eluding US emission tests. It was observed by EPA that the company had intentionally organized TDI (Turbocharged Direct Injection) diesel engines, in order to initiate specific emission tests only during emissions examination in laboratories. The company had provisioned around 4.8 billion for cost replenishment that was needed to recall automobiles with cheat devices in millions. Ultimately, the company encountered a loss of 2.5bn in October 2015. Furthermore, as the company utilized the defeat device on its four-lakh vehicles to cheat emission tests, EPA also imposed a huge penalty of $37500 per vehicle for contravention of regulations (Spence, 2015). This led to the decline of the companys stock by 20%, together with the resignation of the companys CEO. As a result of the scandal, VW became the soft target of the regulators in various countries. The stock price plunged more than 1/3rd as the company has to announce a quarterly loss of 2.5 billion. The negative influences surpassed the very thinking. The awareness of the scandal raised strong concerns over pollution being emitted from the cars and questioned the ethical validity. Ethical issues The scandal of Volkswagen can be evaluated as a business ethics case and can be said to be a deception or an issue in terms of sustainability. It is even a case of leadership, corporate governance, culture, etc. Specifically, it is an issue of CSR because the social responsibility of the company that comprises of customer and public, regulators manipulation, the responsibility of the environment like pollution, standards of emission and economic responsibility like fall in the price value, fall in the value of stocks, etc (Jonsson et. al, 2009). The first ethical issue arising from the Volkswagen case is not only the disregard of EPA laws and regulations but also the invention of a device to get rid of them effectively. Furthermore, the company did not take proper steps to control the massive amounts of nitrogen oxides that were emitted by its vehicles into the environment (Nelson, 2016). Furthermore, this intentional scandal surely goes against their own values of establishing a gre ener vehicle. Last, but not the least, the major stakeholders of the company was also badly affected due to such scandal. These include shareholders, employees, management, car owners, and the diesel industry as a whole (Suddaby Greenwood, 2005). These issues clearly suggest that Volkswagen contravened the principles of ethics, which was initially approved by the company itself. However, it failed to do so, thereby disrupting the smooth performance within the company by attracting penal provisions and terminating employer-employee relationship as a whole (Volkswagen, 2015). Norms, Principles, and Values There are various norms, principles, and values relevant to the scandal. Firstly is justice wherein the company cheated the consumers because they paid a premium for vehicles, which let out fewer emissions. However, it turned out to be the opposite as emissions were 40 times more. Secondly is the responsibility factor, which states that despite owing a significant responsibility towards the society and the environment, the company did not take due steps to fulfill its duties (Das, 2013). Thirdly is the autonomy factor wherein the manufacturers of the device were incapable to make self-ethical decisions due to extreme pressures from the management. Last is beneficence wherein the company only gave due priority to itself and did not offer help or advantage to its consumers (Klinger, 2016). Stakeholders and their concerns Many stakeholders like customers, partners, society, and the capital market were negatively influenced by the Volkswagen scandal. The consumers were betrayed because of the tarnished brand image of the company that turned out to be a major scam. The immediate impacts of the scandal could be easily observable when the company shares depreciated by one-third (Freeman Harrison, 2010). Hence, in relation to investors and shareholders, this was a key setback for them because they had asserted extreme trust, huge funds, and hopes into the company, thereby making way for the loss of confidence and sentiments of these stakeholders (Fracarolli Lee, 2016). In addition, stakeholders like employees, suppliers, and business partners of the company significantly give priority to health, income, customer satisfaction, and unprejudiced opportunities (Ballou et. al, 2006). Even these concerns were influenced because of the uncertainty regarding the companys performance. The concerns of society that includes municipal authorities, law framers etc have also been observed to concur in terms of climate, environment safeguarding, and vehicle safety (Klinger, 2016). Thus, the concerns of all these stakeholders have been highly put at stake by the scandal. Reason behind the scandal According to various studies, when the company promised public of a new diesel line car that is fuel efficient, green, and would offer better performance, it had little knowledge of what will happen in the future (DeVilliers Van, 2011). It invested billions of euros to develop such a technology that would outperform other competitors, but sooner it started facing various difficulties. Along the path, delays started happening in the development of such technology and the downstream leaders were terrified of mentioning issues about the project to their bosses (Fracarolli Lee, 2016). Hence, the engineers were left with no option than to develop a program that could just falsely pass the test for regulatory certification. However, this implies that the cars were neither in compliance with the law nor it delivered performance that was marketed by the company. This states that the senior leaders must have developed a sense of fear that paved way for such a disaster. Hence, accounting issues like imposition of fine up to $18 billion on the company, 2.5billion loss due to the scandal that led to the decline in the company shares by 20%, decline meant of goodwill and trust leading towards destruction of brand image, and strength and sales as a whole, etc had to be encountered by the company. It does not matter whether it was intentional or unintentional because corporate ethics is very vital for effective results (Balbir, 2016). CSR (Corporate Sustainability Reporting) The VW scandal highlights various portions of the advantages of CSR reporting. It suggests that CSR may be very significant and improving for the companies. As per the CSR reports since 1990, it has been observed that companies have been more transparent in relation to human rights, environmental practices, and impacts. However, Volkswagen had failed to adopt such reporting, thereby leading towards various difficulties. The depreciation of the companys shares clearly highlights the significance of CSR reporting by depicting the dangers of lying about social attributes (Nzuve, 2011). Therefore, the company must accept its responsibility for which it was liable and reporting is its primary duty, even it is not compulsory (Elson et. al, 2015). Had it reported about its activities through CSR, the scenario would have been different. Therefore, it can be concluded that sustainability reporting must be regulated in the future, taking into account the recent corporate scandals. The Volkswagen scandal sheds light that both voluntary CSR measures and government regulations will be inefficient if the corporate managers do not establish significant assumptions about ethical conduct. As the government authorities cannot possess control over the companies behavior at all times, CSR reporting can distil that confidence that can encourage the public in relation to law compliance and broader social anticipations (Janssen, 2013). Hence, the entire idea of CSR must be enhanced, not disregarded. Both the directors report and declaration are essential documents incorporated in the annual report of a company. On one hand, the directors report provides relevant information about the condition of the company, together with its compliance with a set of CSR (corporate social responsibility), financial, and accounting standards, and on the other hand, the directors declaration offers the opinion of the directors regarding assured compliance under Corporations Regulations, Accounting Standards, and other consensus viewpoints of the Group. Directors report is relevant as it assists shareholders in making informed decisions in future. They can find out whether the company possesses adequate resources and whether it can make ways for further expansion in future. In addition, as directors declaration is signed in accordance with their resolution, they are obligated to ensure that the companys records are accurate and adequate through the introduction of proper accounting policies and co ntrols. Therefore, it is required as it establishes confidence in the minds of public that sound policies and processes are utilized within the company. The universal accounting equation if followed by Virgin Australia Group. The assets of the business are the resources of the company and are generated from two main sources. In short assets = liabilities plus the equity of the owners. Owner equity comprises of revenues, gains, and contributions minus the expenses, losses and withdrawals. KPMG audit the financial statements of the company. It issued an opinion that the companys financial statements were in accordance with the Corporations Act, 2001 and Australian Accounting Standards, thereby providing a true and fair view of its performance and financial position. It was also opined that the financial statements complied with the IFRS requirements. During the year, KPMG also offered various other services (non-audit) in addition to its primary services. These were taxation services, assurance services associated with debt raising transactions, sustainability, compliance with service level agreements, and other due diligence services associated with divestments, capital restructuring, etc. PPE (Property, Plant, and Equipment) is the largest asset owned by the company. Its opening net book value reports at $3,081.9 million while its closing value as at 30th June 2016 reports at $2,872.8 million. Furthermore, such PPE is stated at cost minus impairment losses and depreciation (accumulated). Here, cost involves the purchase price plus costs that can directly be attributed to the acquisition. This can accommodate transfers from other comprehensive gains on qualifying cash flow hedges on the purchase of PPE through foreign currency. Depreciation for PPE of the company is identified on a straight-line basis over its anticipated useful life. This is done after considering the anticipated residual values of these assets. In other words, depreciation of PPE is done from the date these are installed or are ready for utilization. Furthermore, when different parts of PPE have different useful lives, then these are accounted as separate items of the PPE. In relation to financed leased assets, these are depreciated over the shorter of their useful lives and lease period until it is assured that the company can attain the ownership by the termination of the term of the lease. The largest source of revenue of Virgin Australia comes from its airline passenger services. Such revenue refers to revenue from the sale of passenger tickets by the company. It reports at $4,194.8 million as at 30 June 2016 and it identified in loss or profit when the performance of carriage is completed. Furthermore, other ancillary revenue of the company consists of revenue from credit voucher redemption when the carriage is complete, or when it is not anticipated to be redeemed by passengers. It also comprises of revenue from airline services including freight, charter, product, unutilized carriage, and on-board sales (Virgin Australia Group, 2016). The net finance costs increased in 2016, as it reported at $169.6 million, whereas it was $93.2 million in the year 2015. The primary reason behind such increase was weaker Australian Dollar, the introduction of new financing facilities within the company, and increment in the rate of interests by the US Federal Reserve (Virgin Australia Group, 2016). Virgin Australia issued $529.2 million ordinary shares in the year 2016. This is the major reason why the share capital of the company enhanced by $158.8 million, in comparison with the last year. The net cash flow from operating activities reported at $198.5 million in the year 2016 whereas net loss reported at $224.7 million in 2016. The directors of Virgin Australia have not identified any contingent liabilities for 2016. Furthermore, as contingent liabilities arise from past events that can only be confirmed by the happening or non-happening of future events, the company could not recognize any such contingent liabilities. There are several elements of unearned revenue reported by the company as a liability. These unearned revenues comprise of revenues that are received in advance by the company and that has been deferred by it in its statement of financial position for the year until the performance of carriage is completed. These unearned revenues have increased by $51.1 million since 2015 as it reports at $990.4 million in 2016 (Virgin Australia Group, 2016). Furthermore, these revenues also accommodate credit vouchers, revenue from the unearned loyalty program, unearned passenger revenue, etc. References Balbir, S 2016, Do You Own a Volkswagen? Values as Non-Functional Requirements. In Human-Centered and Error-Resilient Systems Development, Springer. Ballou, B., Heitger, D. L. Landes, C. E. 2006, The future of corporate sustainability reporting: A rapidly growing assurance opportunity, Journal of Accountancy, vol. 20, pp. 65-74 Das, S 2013, Cultural Due-diligence for Global Operation: Basic Steps, Vilakshan, The XIMB Journal of Management,vol. 10, no. 2, pp. 12-20. DeVilliers, C Van S. CJ 2011, Where firms choose to disclose voluntary environmental information, Journal of Accounting and Public Policy, vol. 30, no. 6, pp. 504- Elson, C.M., Ferrere, C.K. 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