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Accounting Ethics Essay

1. Given the corporate ethical breaches in recent times, assess whether or not you believe that the current business and regulatory environment is more conducive to ethical behavior. Provide support for your answer.

With the historical amount of fraud that has taken place over the last few decades, there had to be a stop of some sort to this type of unethical behavior. Through our class lectures, discussions, and readings, I have learned about the changes made to the business of accounting to ensure that the financial documentation occurred in an honest and professional manner. I would say that I am a believer that the current framework for accountants is working and does lead to more ethical behavior. The Sarbanes-Oxley Act of 2002 was a key milestone in ensuring the appropriate recording of financial information takes place.

The SOX framework can ensure reliable and complete financial information due to the strict requirements set in place. Management (as a result of SOX) has to take a much more active role in their accounting and determine that all financial information is certified and correctly gathered. As a result of numerous scandals, SOX has made the penalties for fraudulent activity more severe, working to the benefit of accounting professionals since there can be dishonest influence placed upon them from the companies or corporations they work for. Additionally, the change to the image that has been placed upon accountants due to the scandals that took place has drastically improved. The act helped to build trust in both investors and managers that would otherwise be nervous that dishonest accounting would take place.

Certain sections of the act helped to solidify my support of the regulatory environment and the effect on the behavior in accounting. According to the American Institute of CPAs, Section 302 lays the groundwork to honest accounting, by creating a set of procedures to ensure complete and accurate financial disclosure. The internal control of periodic reports must be evaluated every 90 days, which in itself helps to keep these proceedings honest since there is a timely evaluation involved. Section 401 required the proper disclosure of all off-balance sheet items and a study from the SEC to understand these tools. Lastly, Section 404 required internal control reports from management. This helped tremendously to ensure that all information is accurate and up to date, though the process of this portion of the legislation was high in effort to control.

2. Based on your research, describe the organization, the accounting ethical breach and the impact to the organization related to ethical breach.

I will continue to build upon the example that I found interesting in our second week of class. The American Insurance Group scandal of 2005 was a famous insurance corporation, alleged to have $3.9 billion dollars in accounting fraud, as well as stock manipulation of their prices and bid rigging. The CEO booked loans and listed them as revenue, while leading their clientele to insurers that were in quiet dealings with AIG through payoffs. He also tipped off the traders to inflate their stock prices.

3. Determine how the organizational ethical issue was detected and how management failed to create an ethical environment.

The SEC discovered the scandal through investigation, and the CEO was fired, though he did not face any criminal charges. AIG settled with the SEC for close to two billion dollars between 2003 and 2006. Outside verification of their financials would have prevented this instance from occurring.


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