Ethical Observations Essay Example for Free

Ethical Observations Essay Unethical accounting behavior and the resulting practices of it within businesses today is a very hot topic since the Enron accounting scandal of 2001. One might ask how does a scandal of this proportion come to be and can it happen again? What situations could lead to unethical behaviors and practices in accounting today that might cause history to repeat itself? The author intends to answer these questions and shed light on some insight of accounting ethics today. By the end of 2001 investors and the public needed something to restore confidence in the way businesses handled accounting and reporting practices. The Sarbanes-Oxley Act was passed into law in July 2002 with the intent of protecting investors by improving financial reporting accuracy and reliability as a result. Ideally, fraud will be prevented through SOX by increased internal controls and greater transparency in accounting practices. The theory is based on the logic that managers who engage in fraudulent activity will be discovered and punished by fines or imprisonment. This theory has mixed reviews as of today. Some argue that SOX does not do enough to prevent managers from manipulating earnings or hiding assets. Others maintain that SOX has improved the level of ethics awareness and concern from what it was in 2001. Most will agree, however, that the law is a step in the right direction and that ethics is a major concern and becoming a more discussed topic of top management in larger corporations today. One might consider why more firms do not have ethics codes or policies in place to prevent the conduct described when in fact Enron did have an ethics code supposedly based on respect, integrity, and communication. One of the problems was that of leadership failure and The point is that an ethical culture must be maintained within an organization at the corporate level and fostered with each new employee from the top down. Although a situation such as Enron’s is not as likely to happen the same way again, when management places extreme emphasis on earnings and promotes activities that might cause earnings to appear inflated, possibilities exist for an unethical situation to occur. (Conroy Emerson, 2006) When a corporation’s culture supports risk taking without regard for consequences, and it uses employee performance appraisals to undermine their position, there is the likelihood that unethical accounting practices will be needed to cover up such activity. Additionally, as with Enron’s case, internal controls were weak or simply not present at all to maintain good accounting as with Generally Accepted Accounting Principles (GAAP) while divisional business units were kept in the dark from noticing what was going on in the overall sense of the scheme. When looking at how important it is to identify unethical behavior in accounting, consider the recent U.S. Housing Market collapse of 2008. Simple mistakes in identifying financial fraud caused some mortgage companies to be over-valued in return allowing investors to lose billions. (BBC News Business, 2011) Unfortunately, in some cases, employees that bring unethical behavior to managements’ attention, risk criticism or worse job loss if deemed a whistle blower. Past cases have indicated that there may be no incentive from management to bring attention to questionable accounting practices in this way. Without managements support and leadership to instill good ethical culture within the workplace, it will be difficult to see positive changes in the future. In conclusion, a greater emphasis on accounting ethics is being seen since the days of the Enron scandal. Ethics is being taught at schools and universities with goals in mind to recognize when situations occur that may be questionable. Ways of dealing with accounting uncertainties and ethical dilemmas are being taught with a sense of moral obligation instilled. New accounting students are developing the abilities to deal with moral issues that relate to accounting and auditing practices. Most business leaders will agree that the improved regulations provided by SOX have made an impact and caused firms throughout the U.S. to review their own accounting practices and at least attempt to comply. References Bannon, S., Ford, K., Meltzer, L. (2010). How to instill a strong ethical culture. The CPA Journal, 80(7), 56-58. http://search.proquest.com/docview/637267174?accountid=35812 BBC News Business. (September 26, 2011). Deloitte Touche sued for $7.6bn in mortgage fraud case. Retrieved from http://bbc.co.uk/news/business-15069976 BBC. (May 17, 2003). The Enron Affair. Retrieved from http://news.bbc.co.uk/2/hi/in_depth/business/2002/enron/default.stm Conroy, S. J., Emerson, T. N. (2006). Changing Ethical Attitudes: The Case of the Enron and ImClone Scandals. Social Science Quarterly, 87(2), 395-410. Liu, C., David, Y. (2011). An Analysis of the Impact of the Sarbanes-Oxley Act on Earnings Management. Advances In Management, 4(6), 25-31.