...Legality and Ethicality of Financial Reporting 2-25-2013 Ethics 376 Phoenix University Unethical Practices are forbidden in every industry but at the same time they are also performed. Unethical practices occur when a business does “not conform to approved standards of social or professional behavior”. ("The free dictionary,") There are many situations that can lead to unethical practices and behaviors within the accounting profession. The Sarbanes Oxley Act of 2002 was put into effect to prevent a lot of these unethical practices. In every business owner’s life, there comes a time when a decision must be made, that if is made in favor of the company and/or for personal benefit will be considered unethical. The business owner is the person who sets the standard for his/her company. He/she is the person who sets up guidelines that demonstrate the contrast between ethical and unethical values and behavior, establishing the first step in creating a company culture emphasizing and reinforcing ethical standards. In the accounting industry, professionals not only have the standard practices of accounting but also, board accountancy rules, such as SOX and GAAP, when creating ethical standards. Federal and state laws play a big consideration during this time. Such a time came for CFO of Excello Telecommunications when he considered inappropriately posting a $2.1 million transaction to boost year-end earnings. At the end of 2010, Excello...
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...Today’s society throws around the word integrity loosely these days. This paper will explain identifying situations that might lead to unethical practices and behavior in accounting. I will also share what I learned about the effect of the Sarbanes-Oxley Act of 2002 on financial statements. Examples of unethical behaviors involved injured parties, how the unethical behavior affected the organization, individual and society, and how the unethical behavior could be avoided will be discussed. Situations That May Lead to Unethical Practices There will be someone who will ask the person doing the books in business to ignore or change something in the books, when a person is in the accounting or finance field long enough. Choices like this are measured to be unethical practices and behavior. The practice of changing the books for whatever the reason is just one of many different ways that this can happen. The broad-spectrum of unethical occurs when employers do not obey the rules of their professions approved standards. Amazingly at times, though unethical it may not necessarily mean that it will be illegal. The people doing things right find this very frustrating in their industries. A popular example of an unethical practice may be a person whom manipulates businesses finance, or has different ways of controlling the net income to either make the business look better, or for their own personal gain, especially when it comes to paying taxes. People don’t want to pay taxes, yet when...
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...Impact of Unethical Behavior Article ACC 291 Impact of Unethical Behavior Article Potential acts leading to unethical practices and behavioral in accounting is evident. These acts are in violation of the Sarbares Oxley Act of 2002 (SOX). A recent article on the student website is reviewed to identify potential factors leading to unethical practices and behavior. The article analyzed is called “Becoming a More Relational Firm in the Post-Sarbans-Oxley Era”. As expressed by the article, the effects of SOX has been considered by companies in which use auditing services as their main source of business (Jelinek, Jelinek, 2010). SOX has caused agencies to have a strong battle obtaining clientele. The SOX act has changed provisions in which disallow an agency to sale services directly to company personnel (Jelinek, Jelinek, 2010). This has resulted in agencies having to go an outside committee to sale services or products (Jelinek, Jelinek, 2010). The act also requires the auditor agencies to resale from services after 5 years and disallows them to seek employment with a previous client within of a year of last audit (Jelinek, Jelinek, 2010). These new rules have caused the agencies to have very strict rules of operation procedures. With the information obtained in the article, is has been relevant that auditing agencies are having difficulty rendering services. So if auditing agencies are not doing auditing then companies are use internal auditors...
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...Article Analysis on Unethical Behavior and its Effects Article Analysis on Unethical Behavior and its Effects ACC 291 Article Analysis on Unethical Behavior and its Effects Possible functions and actions resulting in dishonest tactics and unethical behavior within accounting are obvious. These kinds of actions are usually in breach of the Sarbares Oxley Act of 2002 (SOX). An available article inside the university student library website is going to be examined to be able to determine possible elements resulting in dishonest practices plus behavior. This content examined is known to as “Becoming a far more Relational Firm inside the Publish-Sarbans-Oxley Era”. As shown by the content, the effects of SOX have altered company practices in accounting which companies now use third party auditing services (Jelinek, Jelinek, 2010). The SOX act has changed conditions by which to disallow a business to purchase or trade services straight to business employees (Jelinek, Jelinek, 2010). This has triggered companies needing to go a third party panel to be able to purchase and trade services (Jelinek, Jelinek, 2010). The act also necessitates the third party auditor agencies to resale from services shortly after five years and not allow them to seek employment having a previous client within of the year of last audit (Jelinek, Jelinek, 2010). These brand new rules have triggered the companies to possess very strict rules of operation methods. Using the information acquired within...
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...Effect of Unethical Behavior Article Analysis Accounting scandals grew increasingly in the early 2000’s. Due to these scandals Senator Paul Sarbanes and U.S. Representative Michael Oxley sponsored a bill that is now known as The Sarbanes-Oxley Act of 2002. They refer to this bill as the SOX act. The reason this law was passed was to help eliminate the fraudulent activity that was taking place within the companies that are traded publicly in the United States. The Sarbanes-Oxley Act of 2002 holds those individuals accountable for unethical acts and behavior. This act makes it so that companies are now required to provide an accurate balance sheet that is deemed verifiable. Accounting practices of businesses are now more transparent and this is due to the Sarbanes-Oxley Act of 2002. This act ensures all businesses have true and correct financial statements (Sox Law, 2006). Unethical practices and or behavior in accounting would be described as any act that knowingly is taking away from profitability of a business. The examples are as follows: falsely reporting financial statements, stealing, and inputting data incorrectly. In order to control the unethical behavior taking place in the workplace, companies can implement internal controls measures. These are checks and balances that will ensure accurate reporting of information. Many organizations utilize the internal controls system to ensure employee honesty. Internal controls also maintain productivity for their employees...
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...Effects of Unethical Behavior ACC/291 One may describe accounting as a type of language or mechanism that provides information about the financial position of a company. The information provided in the financial statements of accounting is used by investors to determine whether or not to invest in an organization, and used by creditors to determine whether or not a loan should be granted. The mere fact that these financial statements are important and involves money opens doors for unethical practice and behavior. In the past years companies like Enron and WorldCom have been scandalize for its company’s unethical conduct in accounting. In the wake of numerous corporate scandals the Sarbanes-Oxley Act (SOX) of 2002 was created to protect investors by improving the reliability and accuracy of corporates disclosure made pursuant to the securities laws, and for other purposes. Although many companies run their business honestly, others turn out to be criminals, robbing their customers’ qualm, or dragging themselves into illegal practices slowly through good intentions or ignorance. Companies may be tempted to practice unethical behavior in accounting for different reasons such as greed, opportunity, disconnection, and ignorance. Unethical practices and behaviors also include: manipulation of financial, bribery, insider trade, misuse of funds, exaggerating the value of corporate assets, exaggerating revenue, securities fraud, purposely providing erroneous information relating...
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...Unethical Behavior Article Analysis Selene H. Peng ACC/291 Principle Accounting April 02, 2013 Sang Kim Unethical Behavior Article Analysis For profits is always the target that any organizations to persuade. This intension might attract some business organizations to produce a creative accounting financial statement to inspire investors investing their funds to the organizations. “Businesses feel the pressure to appear profitable in order to attract investors and resources, but deceptive or fraudulent accounting practices often lead to drastic consequences” (Krantz, 2002, para. 1). In the early 2000s, Congress passed the Sarbanes-Oxley Act of 2002 (SOX) due to the numerous corporate scandals explosions, Enron Corporation was one of the most notable companies to crash. Basically, in 1990s Enron and numbers of publicly-traded companies increase their stock prices by deceptive and publishing false financial statements. In addition, the directors of Enron waived the corporation’s code of ethics in 1999; this action allowed the CFO at that time to manage an investment partnership trading with Enron for illegal profits. By conducting the overstatement of revenue and equity of shareholders; understatement of expenses and liabilities on the financial statements, Enron was committed to the financial fraud. Moreover, Enron was alleged in the events of bribes and kickbacks were being issued from its executives. Hence, SOX was established to safeguard and protect the investors...
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...Effect of Unethical Behavior Article Analysis ACC/291-Principles of Accounting II June 24, 2013 Dale Wilson Having the correct accounting information in a financial statement gives a business owner certain advantages, such as information on financial transactions. If a business owner has information on when the sales or expenses are increasing or decreasing, he can make decisions that can benefit the company’s bottom line. The same cannot be true if he does not have accurate, or reliable, accounting information. There are also times when having accurate accounting information can lead to unethical practices in accounting because the information in the financial statement may not be beneficial for the business or the shareholders. Such instances made it necessary for the government to enact legislation that makes such practices illegal. There are many situations that might lead to unethical practices and behavior in accounting. Misuse of funds, insider trading, bribery and providing misleading financial information for personal gain are all examples of how businesses participate in unethical practices and behavior in accounting, all of which can lead to the inclusion of incorrect information in a financial statement. Prior to 2002, investors had no protection against corporations that failed to fully disclose financial information. This led to some of the biggest corporate fraud cases, involving companies like Enron and WorldCom. In 2002, because of the unethical practices...
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...Effects of Unethical Behavior Anita Pleasant ACC/291 March 10, 2014 J. Leanne Janis Is the Sarbanes-Oxley Act Working? Today’s corporate executives are well aware of the consequences and punishments they face since the enactment of the Sarbanes-Oxley (SOX) Act in 2002, but is the law enough of a deterrent for senior management? Over the past decades many CEO’s have risen to their positions with little training in accounting or finance, and it makes one wonder about the type of decision-making process these non-accountants employ when making financial reporting decisions. The SOX Act was implemented to protect the financial markets in the United States by encouraging corporate officers to become more involved in financial reporting decisions, and holding them more responsible for the data within each financial statements their company issues (Maroney & McDevitt, 2008). Can these in individuals without the necessary accounting training understand and make the accurate financial statement adjustment decisions required by the SOX Act? The Tyco International scandal is a prime example of how a chief executive officer (CEO) who obtained his position by rising up through the company used unethical behaviors which almost destroyed the organization. Even though the scandal occurred before the SOX Act was enacted, it demonstrates how unethical behaviors can affect a business. Dennis Kozlowski started working for Tyco in 1975 as an assistant controller; he joined the board...
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...Business Ethics By Takeisha Bagley American Intercontinental University November 12, 2009 Abstract This paper will address current issues that organizations face when trying to control business ethics. Over time, business ethics and the U.S. government’s outlook on controlling unethical and illegal behavior have varied. Although business ethics has been discussed for several decades, it has only come to the forefront in the past several years. This has been especially true over the past decade, with the enactment of the Sarbanes-Oxley Act of 2002 (SOX) to help protect employees and investors. CHAPTER 1: INTRODUCTION Over the past decade, Enron, WorldCom, and Arthur Anderson have been household names when discussing business ethics. Each of these companies, in its own specific way, made use of gray areas in accounting. These subjective areas were not tightly controlled by the Securities and Exchange Commission (SEC) and were used to misrepresent a company’s financial performance for the purpose of misleading the investment community (Carroll, 2004). Although ethics and compliance are two separate entities, they are fundamentally intertwined. Compliance involves laws and regulation, while ethics encompasses an individual’s beliefs and values. An individual’s ethical beliefs are based on the “ideals, to which employees aspire to act, when called upon to make a decision about what is right and where law is not clear” (National Business Ethics, 2005, p. 9). Problems...
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...Effect of Unethical Behavior Article Analysis Chris May 6, 2013 Acc 291 Judith Vargas University of Phoenix I am going to explain in this paper some situations that might lead to unethical accounting and how we can identify some of the unethical practices in accounting. In an article that I read it talked about how when the economy is down that a lot of companies enforce ethics and make their ethical policies even better, but at the same time the article also states that when the economy is booming does it relax it ethical policies and let things pass. The Sarbanes-Oxley Act (SOX) has greatly helped to make company’s financial statements a lot better in making sure the companies are reporting all their earnings and expenses and so forth. The goal of SOX was to make companies and employees behave ethically; however, whether that has worked or not is questionable. Many argue that the implementation and ongoing requirements of Sarbanes Oxley and other laws are costly, time consuming, and as yet ineffective. Some say that SOX, “in many instances law has at best led to a culture of compliance rather than a culture of integrity. Even more disappointing is that too often the very activities Sarbanes Oxley were designed to prevent continue to slip past regulators until it is too late and the damage incurred (Hazels 2010)”. Some signs that I can think of, of a company being unethical is that they are struggling to pay back debts and these debts are not being...
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...Effect of Unethical Behavior Article Analysis Prior to 2002, there were no major regulations that were enforced to maintain lawful ethical accounting practices. Since this was the case, there were no internal controls and thus was a leading cause that enable large corporation to commit fraud by altering books to show more profitability. Due to the overstating of profit in these large companies, investors were provided false information which made their want to invest in these corporations more. An example of a corporation that did this was Enron. Enron Corporation was an American energy company that was based in Houston, Texas. It was one of the world’s leaders in electricity, natural gas, pulp and paper, and communications. Enron reported financial conditions were sustained by systematic and planned accounting fraud. There were several reports that involved irregular accounting procedures which bordered on fraud. These reports were between Enron and their accounting firm, Arthur Andersen. Enron’s stock eventually plunged from $90 a share to $.30 a share. What was once considered a great stock was now a disastrous even in the financial world. All of this was brought to a head when Enron revealed that much of its profits were the result of deals with special purposes entities (Davis, Donna. 2011). Therefore the results were the any debts or losses that Enron suffered were not reported on financial statements. These unethical practices and...
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...Financial Reporting and Ethical Practices Rakel Raigns, Jakeia Griffin, Victoria Jones, Samirah Merritt University of Maryland University College November 9, 2013 Author Note This paper was prepared for AMBA630 Economics Management Decisions, Section 9045, taught by Professor Victor Bahhouth. Executive Summary In order to avoid fraudulent reporting, the Securities Exchange Commission (SEC) has mandated that auditing for organizations must be completed by independent accountants. Today scrutiny of the accounting industry is more intense as laws are created to punish those that choose to falsify information. This paper aims to explain the importance of the Sarbanes-Oxley Act (SOX) as it relates to the internal control, Chief Executive Officers and Chief Financial Officers. We will also identify the pros and cons of the Sarbanes-Oxley Act (SOX) and changes that could be made in order to pose arguments from both sides of the act. Introduction In the early 2000’s, one of the darkest times ever experienced in the history of accounting occurred due to numerous scandals. The results of these scandals from companies lead to terrifying actions, which included the downfall of one of the largest accounting corporations, Arthur Anderson, for their help with Enron. Companies such as Enron, Tyco, and WorldCom have led to the passing of the Sarbanes-Oxley Act (SOX) due to their financial reporting scandals (Forbes, 2013). With the passing of SOX in 2002, the falsification of...
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...Running head: Review of Accounting Ethics 1 Review of Accounting Ethics Cynthia Harley Dr. Julie Hamm Acc 557 5/1/2014 Review of Accounting Ethics The WorldCom Scandal Vikalpa: The Journal For Decision Makers provides us with the following excerpt from WorldCom’s 2002 press release: CLINTON, Miss., June 25, 2002 –- WorldCom Inc. (Nasdaq: WCOM, MCIT) today announced that it intends to restate its financial statements for 2001 and the first quarter of 2002. As a result of an internal audit of the company’s capital expenditure accounting, it was determined that certain transfers from line cost expenses to capital accounts during this period were not made in accordance 2 with the generally accepted accounting principles (GAAP). The amount of these transfers was $3.055 billion for 2001 and $797 million for the first quarter of 2002. Without these transfers, the company’s reported EBITDA would be reduced to $6.339 billion for 2001 and $1.368 billion for the first quarter of 2002, and the company would have reported a net loss for 2001 and for the first quarter of 2002 (Pandey & Verma, 2004, p. 113). This information came at a time where the company had reached an all time high in the industry, second only to AT&T. The company originally started out as a small provider of long distance telephone service in Mississippi under the name LDDS and later changed its name to WorldCom. During the 1990’s the company took on an aggressive acquisition strategy acquiring the likes...
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...The Sarbanes-Oxley Act of 2002 Brandice Vasquez, University of Phoenix July 22, 2012 Linda Moore As businesses progress throughout the years, so must laws and regulations to ensure legal business practices remain ethical. Unfortunately, rules and regulations must be made because regrettable actions from large corporations are tainted with greed and power. Corporate Governance Within the past few years headlines have told distressing stories of unethical practices from large corporations such as Merrill Lynch, Enron, Martha Stewart, Adelphia, Boeing, Rite Aid, Xerox, and many more (Arjoon, 2013). According to Arjoon (2013), the definition of corporate governance, “is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders and spells out the rules and procedures for making decisions in corporate affairs. By doing this, it also provides the structure through which the company objectives are set and the means of attaining those objectives and monitoring performance.” The object of corporate governance is to ensure that a corporation is held to strict guidelines that promotes fairness, transparency and accountability, and that any action taking by a manager is of the interest of the major stakeholder groups. The key...
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