This research paper is about accounting fraud that happening before and after the inception of the Sarbanes-Oxley Act of 2002 and actions taken to deter the illegality. Since the accounting fraud has become a topic that always appears in the news, the Security Exchange Commission (SEC), the accounting board that regulated the public companies should enforce certain rules to punish offenders. The matter is that the punishment might not severe enough for individuals who have performed these unethical acts. The increasing number of deception acts might make the public think to force SEC to give harsher punishments. Since the inception, SEC have established and updated the accounting principles and ethics, however the standards might not have enforced and been followed properly. When it comes to accounting standards, SEC, AICPA and other accounting boards should use more effective and efficient ways to influence the people in businesses, letting them know how important and what could be effected if accounting fraud has hit one company. In this case, all accounting boards might carefully select key words and phrases to grab the readers’ attentions such as Corporate Fraud, Ethics for Accounting Professionals, Corporate Scandals, and ethics violations.
As it could be witnessed, the big fraud committed in the big company such as Enron has made the public realized that the accounting fraud have to stop in some point. That is why SOX Act started in 2002, to encourage the fraud risks from happening. However, in the reality that fraud is still around and has been increasing. No matter how hard SOX have tried, the public is uncertain and aware that manipulation acts still around and may take away their retirement savings. In the recommendation that accounting boards, public and government should SEC and other governing bodies approach to enforce policies, to implement the changes in a way that would make the corporations think twice before deciding to do unethical and illegal acts.
In the U.S., accounting fraud has been around since long time just like food that can be found in the commonplace every day. However, people didn’t realize or they probably didn’t know what have actually happened until the big fraud collapsed a giant company like Enron and WorldCom. From that point, the American have stunned and distrusted the accounting professional and it is going to take a long time of enforcing the laws to win the confidence back it once had. The distrust arises because of how Americans are baffled and ruled by how that even after legislation and other accounting standards have been enacted, but, the next is to be another scandals.
Moreover, the SEC has published the details of sixties and more cases in the current year against fraudsters who committed criminal acts. The culprits include the internal corporate executives and outsiders such as the board of directors of companies, auditors and accountants.
Years after years, SEC with help of the FASB, ASB and PCOAB have been making tremendous efforts to deter accounting fraud. One of the primary objectives is to protect investors from the increasing number of accounting frauds and scandals. And, at the same time, deter of deceitful fraud hopefully can reflect to a better transparency of the presentation of the financial reporting. It is not only in the U.S, but also in the future the international accounting standards can be more in line means that countries, other than GAAP accounting, adopt IFRS can increase their confidence of the framework used.
Recently, the issue is either U.S. GAAP or the adoption of IFRS in the U.S., still has to face unethical behavior from the people who are in the high profile of the corporate setting or accounting profession. The difficulty of dealing with the unethical people might cause another accounting issue in the applying its standards in the workplace. To manage and control the ethics issue, the AICPA has put into a place a Code of Professional Conduct in which its members have to be able in assisting any issues with accounting related including ethical problems caused in the work place. Most of the unethical dilemma is something causing pressured to do immoral thing at work.
In general terms, fraud consists of asset misappropriation, fraudulent of financial reporting, and corruption actions. Material misstatement in the financial statement may be considered fraud and have a significant adverse not only on the market value of equity but also harmful effects reputation of the company. Moreover, if the company involved in illegal activities, the strategic objectives of the company will be ruined and lose its trustworthy from the investors. An overall, the accounting fraud mostly related to white collar crimes.
There is no absolutely effective fraud program that can reduce of fraud; however, continuity of monitoring can encompass the elements such as prevention, deterrence, and even detection can minimize the magnitude of the occurrence of fraud. The management of the company has a responsibility for designing and implementing effective internal controls. The objective of internal controls is to give a standard measurement on how to adjust the evaluation of fraud, based on the level of risk on fraud. The controls implemented should be monitored in a regular basis by the Quality Control Committee.
Based on the SEC website, there has been multiplied cases opened daily every year.
The “SEC Complaint” also has complete information including type of cases such as litigation complaints. (SEC, 2017). The statistic shows that from corporates’ scandals has been increasing from years. The professional in the businesses and accounting field hope that federal government and SEC can improve the rules and regulations system. The effective laws established by federal government is really important to decrease the number cases from happening.
Another fact is mentioned by Patricia Galletta the FBI’s reports notes that “…6% rise in fraud offenses…” from years to years. The rise of the scandals and scams in the corporations should become the important topic to discuss by the regulators with the professionals and scholars in the business field. As suggested by the author, all participants in the business should take part to report fraud to the government agencies and accounting boards. Fraud can be incurred also in the non-for-profit businesses such as animal shelters, homeless shelters in NYC and so on. The fraud is usually arisen when the intentional falsity made by top level perpetrators because they have the most access of the controls in the organizations. The fraudulent also can happen in the government agencies and accounting standard boards level who’s the top management knew very well the principals, standards, laws that are being prepared or reformed have more chances to changes, manipulate, edit or change to make them more beneficial to the certain parties.
Moreover, corporate scheme is also can defined one of the frauds that frequently happened and should be aware by the users of the financial statements such as “… employees, creditors, stockholders, and investors.” (Evans, 2015).
The schemes could be done by collusion between two or more individual in a same department or difference departments to steal assets from the firm. Scam is probably done by the smaller companies, however the manipulation of assets that is done by big company such as Enron and WorldCom defined as scandal. The accounting scandal is broader and usually done by multiple corporate levels. The accounting scandal is more complex and required more intellectual professions in the field to its wrongdoing plan and the need to careful monitor its plan. Not only the internal personnel, such scandal committed by Enron, has involved the external party which the external auditor to smooth its comingling activities. One of the big reasons that the external auditors took part in the accounting scandal because they are trusted of knowing to “…wipe out completely…” (Giroux, 2008) the evidence of misled on recording its accounting books committed by the all parties.
The negative result from the irresponsible acts by top level perpetrators have caused thousands of employees lost their jobs. The employees who have invested their retirement savings into the companies’ stocks have to walk away without taking their money back. After the loss experienced by thousands of stakeholders, the executives and accounting firm of Arthur Anderson should take on a blame of their greed.
The accounting scandals have become the topic that are most likely being debated by the public. The numerous loss of the collapsed of the big companies have the tremendous effects in the country for decades. The needs to identify causes of the issues in order to solve the problem.
Due to intentionally in maintaining the inadequate the books and records can be the basic issue to dig up how the accounting standards and principles are being abused by the corporate officers. There should be a guidance to enforce that the entire personnel in the company should follow the adopted accounting principal and standards when it comes to maintain the recording of corporate’s books. Moreover, after the standards are being enforced, there is a need to gradually monitor the daily basis activities of the business operating.
The outside people who are not considered as stakeholders might not ever think that inadequate book of the company can cause the big loss of assets of one company. And, the worst, the increase in total unemployment in the country. However, it started with the inadequate book keeping of the company which also known by “Cooking the Books: The Cost to the Economy, set out to show the effects that corporate scandals have on the U.S. economy”, the article was written by the three authors in 2002. Cooking the books is the accounting term used when the corporate is doing something in their books and records in order to create a desired numbers. This also means, the falsity numbers in their books would make their financial statements look good and profitable to attract the investors.
Since the 1960s, the U.S has been influenced by the growth of the capital market, so the wealthy and rich people have been trusting their money into the investments such as mutual funds, stock and other retirement plans accounts. The report showed that the capital investments have been increasing especially in the mutual fund shares of 401(k) assets, were more than 44% of the total growth in the capital market. The capital in the companies’ of the 401 (k) assets is considered more aggressive in the increase, and at that time, there was no an awareness that the pension accounts could become one biggest target of the accounting scandals.
The public has no knowledge to diverse its investments and most of their investments was in the pension plan accounts. Unfortunately, the accounting scandals was being driven by big corporates’ perpetrators to take away all of the money and left nothing for the investors. The worse scene that there were accountants or auditors who also had their roles to cook the books or polish the corporates’ books and records. The accounting scandals cause a trauma for the investors to invest their money back in the capital market. Moreover, accountants and auditors were trusted as the persons who performed their jobs in a due care has lost their trustworthy in the public.
Each accounting scandal have left a bitterness for the stakeholders. The SEC has come in to the place to rearrange the enforcement laws and accounting standards to make a better connections between the parties in the businesses. SEC, with the collaborating with the Public Company Oversight Board (PCAOB), Auditing Standards Board (ASB), and the Financial Accounting Standards Board (FASB) started with updating each standard to clarify how to use apply the standard in the booking of the companies’ transactions, preparing financial statements and so on. The objective of the oversight of these accounting boards is to protect the investors and create a fairness if there is a company has attempted or has create a loss for the investors. The protection is also for the employees who have reported wrongdoing of the company, these employees will not get fired or lose their jobs because of their reports to SEC or other accounting boards. The enforcement must to follow by all companies to adopt a reformed of the applicable of accounting standards and principles and the accounting boards will take actions to the corporate corruptions or other schemes.
Moreover the important of “The Role of Government in Corporate Governance, The public outcry over the recent scandals has made it clear that the status quo is no longer acceptable: the public is demanding accountability and responsibility in corporate behavior” (Coglianese, 2012), as author comments in his article. Author suggests that corporate management has to re-manage and re-establish the public trust. To make this happen, all corporate levels have to fully understand to what could be effected if the reformed of the accounting standards and principal and related legal are adopted into the corporate. Sarbanes-Oxley Act through Congress takes the scandals that happened back in 2002 became as lessons and back up to improve the accounting standards and rules of internal controls for the public companies.
However, after Sarbanes-Oxley Act has passed its reform standards, it doesn’t seem the standards can be easily adopted by all companies. Moreover, it doesn’t seem works to prevent or stop the company from committing the schemes or cooking their books and records. One of the objectives tends to reduce the greediness of the executives that have power of the internal control of the companies. In order to achieve the objectives, it might need a long process, especially to prevent frauds are being occurred. FASB and IASB have been working in the process through the convergence to make the gap closer between U.S GAAP and IFRS standards. So, all of the stakeholders are easily to follow what have been updating in the accounting and auditing standards. Also, FASB and IASB also enforce the regulations and laws that have relation with all accounting frameworks. With the cleared transparency of the accounting frameworks, the laws will give a punishment for the person who has committed a fraud, cooked the book or other illegal acts. And, the hopefully the updated standards can bring a fairness in the business world.
According to SEC website that since 2002 there were more than 5,500 cases which means approximately 400 cases in average every year the accounting scandals that were reported. The number of cases keep increasing and this increased can’t be a fully responsible for the SEC or other accounting boards. In other word, SEC or other regulators can’t be blamed on the increasing fraud cases; however, the corporates officers should take the most responsibility on the accounting standards. To be fair, the responsibility of the design, implement and monitor of the internal control is the corporate management tasks, so they are most likely the parties who can override the controls, including the cooking books case.
In addition to the internal control, the frequent questions asked are how the ethics in one company might and what the atmosphere workplace is. The high profile executives should measure and monitor how the current atmosphere is or what is the expectation of the atmosphere should be in the workplace. Good ethics in workplace might positive result to good jobs will be produced by each of the employee. And, if bad ethic value adopted by one company, the synergy of work environment created might give a negative atmosphere for the employees. As a result, one employee doesn’t feel she or he is being treated well or fair, and how the accounting scandal is coming from.
For the most case, while the preparatory who committed the accounting scandals were originally from the company where they worked; however, the effect of the wrong acts have been experienced by the external auditor. Public always assume that if there was one accounting scandal occurred in one company, there must an involved of the external auditor of that company. The public might still have the Enron’s scandal which the auditor of the company has a big role in the manipulating its accounting data.
Public only know that What Went Wrong in the company, article by Giroux, is always related with its accountant and auditor. Public is still shaken with what Arthur Andersen, the public accounting firm, which have a big involved and found guilty on the accounting scandal committed by Enron. Overall, in the eyes of public, most of the public accounting firms would do the same as what Arthur Andersen have done. It was because of mistake done by one accounting firm and the effect have been experienced by all of the public accounting firms. Arthur Andersen has polluted a good reputation of public accounting firms in worldwide and it is so difficult to gain a trust back from the public. Arthur Andersen knew that everything have done in a wrong way, but instead of reporting to the SEC or other accounting board, they chose to cover the comingled activities as was planned. By doing this unethical act, Arthur Andersen has received so much money from the Enron’s executives. The collaboration unethical acts have committed by all parties involved to make other people lives miserable because these irresponsible parties think that the acts are rational. The rationalization of doing a wrong thing because they have an opportunity or chance to override the control and work away with big bucks. Arthur Andersen could reveal what was happening in Enron; however, they realized of the money being gotten, they preferred not to report to any accounting boards.
As it is suggested in the AICPA website that the business should conduct in a, “…honorable behavior, even at the sacrifice of personal advantage” (AICPA, 2016), including all of parties that involved in the business. This also means that auditors should exercise due to professional and honesty when performing the audit. The auditor also should never have interest conflict with the company that he or she is being audited. The effect by having a conflict interest in the client also means that the auditor’s impendency is impaired. That auditor should not involve in that audit, otherwise there is a new accounting scandal committed. In a case if client has asked an auditor to prepare his or her income tax, and the auditor uses his or her best loophole to save client money. There is still in a debate that the act might be not considered as a fraud, but there is probably unethical or moral issue that related to this case. By saving client’s money not to over paying on taxes means that the accountant probably increased client’s expenses, so in overall the net income doesn’t look high. To increase the expenses, the accountant probably use her or his subjective judgement instead of objective judgement.
When it comes to ethics, there are a lot of things to describe it. Ethic of one company can be also defined as the culture of the company. The ethical behavior becomes the standard for the company to operate its business. Not only businesses should have a good ethic when conducts its businesses, but also, it is referred by The Code of Professional Conduct by the AICPA, the accountants should become a role model to maintain the public’s trust (AICPA 2016).
Since the accounting scandals committed by the big companies, the accountants and auditors have lost their trusts in the public. Now, it is the time for accountants and auditors to improve the performances in the fields and maintain its code ethics to win back the trust in public. The public might need time to get their confidence back to trust the value of services performed by the accountants and auditors little by little.
The update and revise of the current accounting standards and principles might not work as effective as it was planned. However, the international standard, IFRS, has also obtained and maintained a foothold in the U.S. Both frameworks have collaborated to minimize the gap between the accounting standards and principals. So, the hope that with all of the accounting standards and principals updated, the new accounting cases reported can be based on the standards applied. SEC should take a quick action to prosecute offenders to deter the wrongdoers. Also, another recommendation that the AICPA and PCAOB should enforce the mandatory rules and regulations, so all of the businesses compliance with as it established by the regulators. The whistleblower policies should ensure they are applied to protect good employees who have reported fraud to SEC.
Conclusion
In the conclusion, there are many different ways to skin a cat. Most people believe that SEC and other accounting authorities to have a better way of reducing and preventing to eliminate accounting fraud. Even though the fraud can’t be reduced overnight, but the accounting boards need to take a stand up to ensure that all of the corporations’ financial statements are done correctly and help to elevate the growing concern that investors have.
In the auditing field, the accounting firms hold onto their auditors for the extended periods of time because the auditors are the bridge to build a good relationships with the client to happen.
The existence of the auditors is supposed to make the client can become familiar with their auditors and trusts back the public accounting firms can increase the overall efficiency of the audit. The afraid of that the familiarity that client and auditor relationship could create conflicts of interest. When the auditors stick around closely with a particular client, and they probably are offered a career at client’s company. These instances, although these are not rare in the real world, is a conflict of interest is prohibited in the firm’s policies and procedures, however, the client could exploit it as the opportunity for their gain. The close relationship happened in numerous times in the history including Phar-Mor Inc. And, when the auditor and client have this familiarity could open up the chance for the auditor to become unethical by accepting the bribes to keep their client pleased.
Sarbanes-Oxley Act is supposed act as a shield to deter fraud to happen, however, since the act has passed more than fifteen years ago, it doesn’t show that any signs that fraud has been decreased as it expected. The accounting boards might have to come with a better idea to improve how the accounting principles and standards can work properly. The professionals in the businesses should give time in the process of its convergence project between IFRS and U.S GAAP to diminish the disagreements.
With a better and clear accounting principles and standards is a way to discourage accounting fraud and other illegal acts to exist. The need to reform the regulatory system can provide more effective auditing standards and principles, and to establish the enforcement of the authority is also another way to deter accounting fraud.
It is the time for the accountants to win back the trust from the public including worldwide investors. By regaining the trust, there might more clients added to the firm’s list. A better interactions between clients and accountants is the key to build more trust in the business world and can decrease the number of scandals. By prosecuting the offenders at the high degree will eventually deter other companies from doing something unethical. As the time passed by, the public will have their confidence back to trust the stock market and the values in the accounting profession and banks as well.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download