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 ...view middle of the document...
These unethical practices and behaviors lead to misleading financial statements and analysis. By the time the investors realized that these businesses were not as profitable as state, it was already too late and the results was millions of dollars lost. This example and many other eventually led government to the Sarbanes-Oxley Act of 2002 (SOX). This act enforces the ethical reporting accounting practices and ensures that situations like Enron will not happen again.
The goal of this act was to make companies and employees behave ethically and to restore the confidence of the investors and public. Recently it has been suggested that the implementation and ongoing requirements of the Sarbanes-Oxley and other such laws are costly, time-consuming, and ineffective. It has been suggested that for some organization and corporations the requirement and subsequent consequences are not a proper deterrent (Hazels, B. 2010). The act holds the CEO’s and CFO’s more accountable for their actions as they are now required to sign all financial statements.
The act has affected the financial statements in multiple ways. SOX required that independent firms audit the financial statements in such a way that the auditor is changed each time to prevent fraud. One of the drawbacks of this law is that is unfortunately can hurt the smaller companies due to the high cost to implement. SOX has had a large impact of the corporation’s financial statements by forcing them to produce more accurate and reliable statements. It was created to protect the investor from fraudulent companies who wanted to entice them into investing in a broken down or weakened company.
Davis, Donna. 2011 Enron Lessons for Everyone. Ethics and Business Conduct. http://www.es.northropgrumman.com/ourvalues/articles/assets/Circuit092002.pdf
Hazels, B. (2010). Eight years after the fact is SOX working? A look at the Brooke Corporation. Journal of Business Case Studies,6(6), 19-29. Retrieved from http://search.proquest.com/docview/818384459?accountid=35812