The Pros And Cons Of Ethical Accounting Ethics

1421 Words3 Pages
bulb-icon

Recommended: Business Ethics in Today's Corporate World

There are many highly publicized scandals about corporations getting caught using unethical and illegal accounting practices. Whether a whistle blower who is an insider with knowledge of illegal goings on at their company, a news reporter covering a story about a company ?? or an audit that might uncover financial irregularities noticing a company that is not using the generally accepted accounting practices (GAAP), a company not using the accounting standards set forth by governing oversight committees is bound to unravel. WorldCom and Enron are just two of the many companies who used unethical accounting behavior this writer will discuss. Both corporations, leaders in their respective fields, were both caught up with corporate greed which will lead to the inevitable downfall for each of them. Each company the product of a merger and headed by well educated men, and each company eventually becoming notorious for their unethical and illegal accounting practices. Both World Com and Enron filed for bankruptcy and both companies had senior executives serving prison sentences…..for….convicted….. World Com accounting scandal is the largest instance of corporate fraud in United States history. The second largest telecommunications company in the United States, WorldCom stunned the corporate world by filing for bankruptcy protection in July 2002. Estimated at having over 20 million customers at the time of filing, it was unclear about the future of the company and how accounting errors of this magnitude could have gone unnoticed. Financial analysts and customers were shocked to hear that WorldCom had filed for bankruptcy and subsequently announcing that it made an accounting error in the amount of $3.8 billion. What’s more,... ... middle of paper ... ...or fraudulent financial activity are much more severe. Also, SOX increased the independence of the outside auditors who review the accuracy of corporate financial statements, and increased the oversight role of boards of directors” Kimmel, PhD, CPA, Paul D.; Weygandt, PhD, CPA, Jerry J.; Kieso, PhD, CPA, Donald E. (2011). Financial Accounting, 6th Edition. Wiley. ISBN 978-0-470-53477-9. Also known by the Senate as Public Company Accounting Reform and Investor Protection Act, and known in the House of Representatives as the Corporate and Auditing Accountability and Responsibility Act of 2002. Names after the two men who sponsored the bill U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). SOX sets forth a standard of the regulations for financial practices that all public companies must adhere to and the penalties for not doing so.

Show More
Related

  • Trinity Industries: SOX Compliance Case

    994 Words  | 2 Pages

    The requirements of SOX from inception consist of 11 sections, SOX legislated, among others enhanced financial reporting, officer’s individual responsibilities for the accuracy of corporate financial reports, the oversight body, PCAOB, to regulate public accounting companies in their capacity as external auditors. Public companies were given until December 2004 to

    Read More

  • Sarbanes-Oxley Act (SOX)

    1765 Words  | 4 Pages

    In July of 2002, Congress swiftly passed the Public Company Accounting Reform and Investors Protection Act at the time when corporations like Arthur Anderson, Enron and WorldCom fell due to fraudulent accounting practices and bad internal control. This bill, sponsored by Mike Oxley (R-OH) and Paul Sarbanes (D-MD), became known as Sarbanes-Oxley Act (SOX).It sought to restore public confidence in publicly traded companies and their accounting practices, though the companies listed above were prosecuted on laws that were already in place before SOX. Many studies have examined the effects of SOX on corporations in the past eleven years. The benefits are hard to quantify and the cost are rather hard to estimate including the effect on market efficiency.

    Read More

  • What Are The Pros And Cons Of The Sarbanes-Oxley Act

    174 Words  | 1 Pages

    In 2002, Congress passed the Sarbanes-Oxley Act (SOX) to strengthen corporate governance and restore investor confidence. The act’s most important provision, §404, requires management and independent auditors to evaluate annually a firm’s internal financial-reporting controls. In addition, SOX tightens disclosure rules, requires management to certify the firm’s periodic reports, strengthens boards’ independence and financial-literacy requirements, and raises auditor-independence standards.

    Read More

  • Accounting Fraud, the Investor and the Sarbanes Oxley Act

    1981 Words  | 4 Pages

    Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).

    Read More

  • Ethical Ethics In Accounting

    1216 Words  | 3 Pages

    Ethic is defined as a set of moral principles or values, a theory of system of moral values, the principles of conduct governing an individual or a group. In all its form, ethics deals with what is good and bad, and with moral duty and obligation. Hence, ethics is either a set of principles held by an individual or group, or the discipline that studies the set of principles (Duska, Duska, & Ragatz, 2011). Ethical theories provide principles that can be useful when solving dilemmas whereas business ethics refers to the ethical values that determine the interaction between a company and its stakeholders. The three major approaches in normative ethics identified are virtue ethics, deontological and utilitarianism (Kraut, 2012), but in this paper the focus is on the two major one proposed for the accounting profession – deontology and utilitarianism.

    Read More

  • Remembering the Frauds at Enron and WorldCom

    2739 Words  | 6 Pages

    "This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business. As these things come out, it just continues to build up"(CBS MarketWatch, Hancock). The memories of the Frauds at Enron and WorldCom still haunt many investors. There have been many accounting scandals in the United States history. The Enron and the WorldCom accounting fraud affected thousands of people and it caused many changes in the rules and regulation of the corporate world. There are many similarities and differences between the two scandals and many rules and regulations have been created in order to prevent frauds like these. Enron Scandal occurred before WorldCom and despite the devastating affect of the Enron Scandal, new rules and regulations were not created in time to prevent the WorldCom Scandal. Accounting scandals like these has changed the corporate world in many ways and people are more cautious about investing because their faith had been shaken by the devastating effects of these scandals. People lost everything they had and all their life-savings. When looking at the accounting scandals in depth, it is unbelievable how much to the extent the accounting standards were broken.

    Read More

  • Worldcom Case Study

    1575 Words  | 4 Pages

    In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.

    Read More

  • The WorldCom Accounting Scandal

    1587 Words  | 4 Pages

    In 2002, WorldCom’s bankruptcy was the largest in US history; WorldCom admitted that it had falsely booked $3.85 billion in expenses to make the company appear more profitable. Ebber who was CEO of WorldCom created fictitious some more than questionable accounting practices. Thus began the practice of taking an operating expense and reclassifyin...

    Read More

  • Corporate Accounting Fraud

    1084 Words  | 3 Pages

    This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such

    Read More

  • Why Are Ethics Important In The Accounting Profession

    1384 Words  | 3 Pages

    The scandals have made some big implications on the profession as a whole. One being the decision from the Public Company Accounting Oversight Board (PCAOB), created by the Sarbanes-Oxley Act (SOA) of 2002, in April 2003 they voted to assume the responsibility for establishing auditing standards. The Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) previously played this role.

    Read More

  • Analysis of the Enron/Arthur Anderson Scandal

    1550 Words  | 4 Pages

    Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...

    Read More

  • Essay On The Enron Corporation Scandal

    2377 Words  | 5 Pages

    However, in December 2001 Enron became global interest as the debts of the firm unfolded which led to the largest bankruptcy in US history at that time yet sharehol...

    Read More

  • What Are The Ethical Issues In Enron

    874 Words  | 2 Pages

    The main ethical issue with the Enron scandal is that Enron allowed legal loopholes to supersede ethical principles (Bowen & Heath, 2005). Enron used legal principles to justify what they were doing instead of acknowledging that the accounting processes they were using were unethical. Another one of the ethical issues is that Enron faced was that

    Read More

  • Importance Of Ethics In Accounting

    1556 Words  | 4 Pages

    Ethics is derived from the greek word ‘ethos’, which means character and the latin word ‘moras’, which means customs. Thus ethics is defined as the personal and professional behaviour with regards to the values, customs, behaviour, principles and morals of society (Senarante, 2011). Professional ethics can be defined as the personal and corporate standards of conduct that is carried out by members of a particular profession. For example, medicine, accounting and engineering. Professional ethics or business ethics cover larger areas than the law, and although an issue may not be illegal, it can be considered as an ethical issue (ATT Ethics, 2013). Business ethics can be defined as the policies and principles that act as operational guidelines

    Read More

  • The Enron Corporation Case Study

    1339 Words  | 3 Pages

    Through an organizational culture that focused on financial greed for self, illegal accounting practices, conflicts of interest partnerships, illegal business dealings, fraud, negligence, and massive corruption at all levels, the Enron scandal help to create new laws and regulations with stiff penalties if violated (Ferrell, et al, 2013). The federal government implemented the Sarbanes Oxley Act (SOX) (Ferrell, et al, 2013).

    Read More

More about The Pros And Cons Of Ethical Accounting Ethics

Open Document