Sefeguards-Threats for Ethical Compliance in Financial Accounting

Topics: Business ethics, Business, Finance Pages: 3 (681 words) Published: February 2, 2013
Accounting can be perfectly explained as a precision tool or language to provide appropriate information with regards to financial position of an organization, corporate or business. With this kind of data or information, it is always critical for investors as it provides them with relevant and thorough information that could turn out to be the deciding factor on whether to invest or not to invest in a particular business, corporate or organization. Therefore, nowadays it is very common to find unethical behavior in many different formats when accounting practices come into picture.

The variety of situations that can lead to unethical practices in accounting are given below:
• Misleading financial analysis in order to obtain personal gains
• Funds Misuse (Liquidity funds)
• Exaggerating revenue (Revenue that is really not there)
• Purposely providing erroneous information in regards to expenses
• Exaggerating the value of corporate assets (similar to exaggerating revenue)
• Purposely providing erroneous information in regards to liabilities
• Securities fraud and Bribery
•Financial Market Manipulation and Inside Trading
The 2002 Enron and the WorldCom scandals are two perfect examples of unethical accounting practices. While Enron was accused of a lot of shady dealings that included concealing debts in order keep them from being reflected on the company’s accounts, WorldCom’s accounting practices were so fraudulent that the company was led into the largest bankruptcy in history of mankind.

Because of the unethical accounting practices and scandals of Enron and the WorldCom, the U.S. government had to get involved and that's when the U.S. government created Sarbanes – Oxley (SOX) Act of 2002. The Sarbanes – Oxley Act was created to bring an end to unethical behavior by implementing strict auditing rules in financial accounting practices done by companies, businesses or organizations. Consequences of Unethical Accounting Practices...
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