Ethics in Accounting

Corporate ethical breaches in recent times have raised questions about whether the current business and regulatory environment is conducive to ethical behavior. Cases leading to regulatory changes through scandalous financial reporting include Enron, Worldcom, Tyco, HealthSouth and others (Enofe, 2010, p.54). Since the barrage of scandals in the early 2000’s, regulatory bodies like the Federal Accounting Standards Board (FASB), Securities and Exchange Commission (SEC), and law reform like the Sarbanes-Oxley Act 2002 have worked to improve the standards and principles used in accounting and financial reporting. The FASB is “the designated organization in the private sector for establishing standards of financial accounting that govern the preparation of financial reports by nongovernmental organizations,” (www.FASB.com, 2013) and is considered the authoritative body by the SEC. The SEC oversees and inspects securities firms, private accounting firms, etc. in an effort to ensure the integrity of financial reporting for investors (www.sec.gov, 2013). The Sarbanes-Oxley Act of 2002 was written to “reduce unethical corporate behavior and decrease the likelihood of future corporate scandals,” (Weygant et al, 2012, p. 7). There is uncertainty that these bodies and law reforms have had a true impact on limiting fraudulent accounting practices or misrepresentation in financial statements. In Koh et al (2007) it is found that management continues to focus heavily on analyst projections and to meet or exceed these expectations. They also conclude “…SOX cannot effectively improve financial reporting transparency unless managers de-emphasize earnings guidance to equity analysts, as pressure to meet such guidance leads to earnings management,” (p. 1). Verleun et al (2011) found conservatism in reporting increased, as did a large number of public companies choosing to go private post-SOX (p. 52). The mere reduction in known scandals does not imply a

References: Figure 1. Dorminey, J., Fleming, A., Kranacher, M., & Riley Jr., R. A. (2012). Diagram. The Evolution of Fraud Theory. Issues in Accounting Education, May2012, Vol. 27 Issue 2, p555-579, 25p, found on p561 Figure 2 Enofe, A. (2010). Reaping the fruits of evil: how scandals help reshape the accounting profession. International Journal Of Business, Accounting, & Finance, 4(2), 53-69 Financial Accounting Standards Board Retrieved from: http://www.fasb.org/jsp/FASB/Page/LandingPage&cid=1175805317407 June 22, 2013. Koh, K., Matsumodo, D. A., & Rajgopal, S. (2008). Meeting or beating analyst expectations in the post-scandals world: Changes in stock market rewards and managerial actions. Contemporary Accounting Research, 25(4), 1067-1098. U.S. Securities and Exchange Commission. (2013). The investor’s advocate: How the SEC protects investors, maintains market integrity, and facilitates capital formation. Retrieved from: http://www.sec.gov/about/whatwedo.shtml June 22, 2013. U.S. Securities and Exchange Commission. (2004). Lucent settles SEC enforcement action charging the company with $1.1Billion accounting fraud. Retreived from: http://www.sec.gov/news/press/2004-67.htm June 22, 2013. Verleun, M., Georgakopoulos, G., Sotiropoulos, I., & Vasileiou, K. Z. (2011). The Sarbanes-Oxley Act and Accounting Quality: A Comprehensive Examination. International Journal Of Economics & Finance, 3(5), 49-64. doi:10.5539/ijef.v3n5p49 Weygant et al