Importance Of Ethics In Accounting Essay

1086 words - 5 pages


Importance of Ethics in Accounting
Everest University

Importance of Ethics in Accounting
Accounting fraud is common but is not as trivial as the common cold; a typical organization loses annual revenues of nearly 5 percent to fraud. In addition, almost one-quarter of reported fraud is exceeding $1 million dollars. The accounting industry is constantly growing and changing. Consequently, difficult decisions have to be made every day. While accountants follow a simple code of conduct; nevertheless, due to the infamous scandal of Enron, the Sarbanes-Oxley Act of 2002 was constructed to reestablish confidence in the public ...view middle of the document...

While working with an accountant, one should be able to count on, and trust they are receiving the correct information and not have to question the accountant’s abilities.
Just as, depicted in the 1987 movie, ”Greed is good!” the movie implies that greed is a motivator and that some business professionals will do anything to make money, which includes the practice of unethical behavior (Smith, & Smith, 2003). An example of this theory is the infamous scandal of Enron, who are synonymous with greed by inflating profits by whatever means feasible. The investigation revealed that the firm Arthur Andersen was negligent in the conspiracy with Enron executives in “cooking the books” by creating false earning reports, thereby concealing massive amounts of debt and falsely inflating stock prices. The investigation established that Andersen instructed or personally destroyed financial documents that revealed the actual magnitude of Enron’s financial difficulties. Also proven was that Enron’s executives and many others led to the implosion of Enron due to fraud, false reporting of revenue, questionable accounting practices and an overall disregard for nearly every principle of accounting ethics. Ultimately, the conspiracy led to overall scrutiny of American’s faith in the accounting profession itself.
Although, accountants already had established laws and regulatory rules to follow, because of Enron and several other large companies involved in serious financial illusions of financial records, and as a result of their actions there was a push to increase regulations and supervision in financial reporting, the Sarbanes-Oxley Act of 2002 (Sox) was put into law. These regulations are mandatory and set the rules that all accounting firms must follow. The Sox Act of 2002 modified the existing laws set by the Securities Exchange Act of 1934, and its purpose was to prevent widespread scandals in accounting from reoccurring. The amended alterations under ”Title VIII of the act (Corporate and Criminal Fraud Accountability) increased penalties to $5,000,000 in fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation” (Addison-Hewitt, & B2B, 2003a). Also within this area it “imposes penalties of fines and/or imprisonment up to 10 years on any accountant who knowingly and willfully violates the requirements of...

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