Unethical Behavior in Accounting

3 March 2017

Accounting could best be described as a type of mechanism or language put in place in order to provide information with regards to the financial position of an organization or business. This type of information is critical to investors as it provides them with important and detailed information that could turn out to be the determining factor as to their decisions to invest or not to invest in a particular organization.

Therefore, it is not uncommon to find unethical behavior in accounting as unethical practices come in different forms. Different situations that might lead to unethical practices in accounting include: •Misleading financial analysis in order to obtain personal gains •Misuse of funds •Exaggerating revenue •Purposely providing erroneous information in regards to expenses •Exaggerating the value of corporate assets •Purposely providing erroneous information in regards to liabilities •Securities fraud •Bribery Manipulation of financial markets •Inside trading Two examples of unethical practices in accounting are those of the 2002 Enron / Andersen and the WorldCom scandal. Both of these companies were involved in unethical accounting practices. While Enron was accused of a vast number 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.

Unethical accounting practices and scandals of the caliber of the Enron / Andersen and the WorldCom scandals is what led the U. S. government to get involved and at the same time contributed to the government’s creation of the Sarbanes – Oxley Act of 2002. The Sarbanes – Oxley Act was created by the government with the intention to bring to an end unethical behavior by implementing strict auditing rules in accounting. However, the Sarbanes-Oxley Act of 2002 addresses problems in the private sector; it does not address concerns in the public sector.

The act has a noticeable impact on financial statements and it is to the benefit of investors, as the Sarbanes – Oxley act helps protect investors by forcing firms to disclose accurate information in regards to corporate disclosure, specifically that of financial statements.

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