Ethics and Accounting - Financial Decision-Making
Ethics in Accounting and Financial Decision Making
The article Ethical guidance and constraints under the Sarbanes-Oxley Act of 2002 by R.M. Orin (2008), espouses the belief that the Sarbanes-Oxley Act did not go far enough in its desire to stop unethical financial practices by businesses. The article addresses what the Act actually does, which is to help companies practice more due diligence and lessen the chances of getting involved in unethical financial practices. The Sarbanes-Oxley Act involves important legal issues. The due diligence is one of those issues, but another is the need for accountants and lawyers to report the corporations they work with for wrongdoing if they see or suspect a serious financial issue (Coffee, 2002). This has been a concern for some because it technically compromises the attorney-client privilege. This was necessary, though, in the face of all of the corporate scandals that came to light (Koehn & Del Vecchio, 2004). If those scandals had not been so serious and all-encompassing for such a large number of people, the issues that were covered by the Act may not have been nearly as significant and may not have left such a lasting impression on the financial world.
Even though the Act was written quickly, it was designed to protect as many people as possible. For example, the pension plans of people who work for companies that collapse (in the way that Enron did) are now protected. The reason the issue was so bad for the Enron employees is that all of the money that was put into the pension...
When the company collapsed and the stock price plummeted, there was no money left to pay the pension because the stock was not worth anything anymore (Koehn & Del Vecchio, 2004). Naturally, that was a serious problem and it left a large number of people devastated. They thought that they would be able to retire, but because of what Enron did, that was not the case. It happened with other companies, too, and was not limited to the collapse of Enron. The large number of companies that collapsed and were damaged beyond repair because of shady financial dealings caused the Act to be put into place, so the people who suffered and lost their pensions were at least able to help others avoid that kind of fate. That may be small consolation, though, at least on a financial level.
However, despite all of the things that the Act addresses, it does not go as far as it could have in protecting individuals from unscrupulous companies and their faulty accounting practices. Currently, the Act calls for auditor rotation that is mandatory - but only for the lead auditor in the firm. All of the other auditors who normally work with the company can remain the same, and that is something that Orin (2008) believes should be changed. Orin (2008) goes so far as to state that the audit firms themselves should be rotated, in order to avoid many of the problems that appeared in the past. The public accountant is supposed to remain independent, and that is very difficult to do when a particular firm (and accountant or group of accountants) consistently work on the same…
