Ethical Observations

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Ethical Observations
Sean Kearns
May 27, 2012

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....