Sarbanes-Oxley Act of 2002

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Recommended: Implications of business ethics

Ethics continues to be a hot issue in the business world. The focus on business ethics grew after several significant business scandals beginning in the millennium. These scandals prompted the government to pass new accounting regulations to increase the control and accuracy of financial reporting. A prominent piece of legislation is the Sarbanes-Oxley Act of 2002, which applies to publicly traded businesses. The basis of Sarbanes-Oxley is to increase the reliability and accuracy of financial reporting (Noreen). At the time of these scandals, many businesses and individual professions already had ethical and accounting standards in place. Subsequently, more businesses have developed ethical codes of conduct.

The codes typically are broad in definition, seldom providing detailed, acceptable behavior. Essentially, the code of conduct expands on the right behavior definition of ethics, which is the study of right or wrong behavior (Miller). The Institute of Management Accountants (IMA) has adopted an ethical code called the Statement of Ethical Professional Practice that describes, in some detail, the ethical responsibilities of management accountants. All employees must follow ethical business practices to maintain a healthy economy built on trust in the reliability and fairness of everyday transactions (Noreen). Accordingly, management accountants must adhere to the standards established in the IMA’s Statement of Ethical Professional Practice, or they will lose the trust of their peers and customers and could risk prosecution.

Consider a business case that challenges ethical behavior and standards. As the new controller for Mega Wheels, Inc., Julie Emerson needs to adhere to the IMA’s Statement of Ethical Profession...

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...quences when making decisions if they view senior management as unethical (Dubrin). As the controller, Julie can take an active role in communicating ethical standards and leading by example.

The controller and accounting staff play a significant role in company ethics. Specifically, they manage all accounting transactions and are responsible for reporting earnings. Julie must demonstrate a strong ethical behavior and instill this value in her employees. In addition, senior management needs to lead their employees to build a company based on high morals and strong ethics. Without the appropriate leadership, the company will suffer as witnessed during the business scandals of a few years back. As stated by Sam DiPiazza, CEO of Prices Waterhouse Coopers, “It has become dramatically clear that the foundation of corporate integrity is personal integrity.” (2003)

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