Identify Situations That Might Lead To Unethical Practices

Identify Situations That Might Lead To Unethical Practices And Behav

1. Identify situations that might lead to unethical practices and behavior in accounting. 2. 2. Do you think that the Sarbanes-Oxley Act has made a difference in the ethical behavior of companies’ managers regarding their financial reporting? Why or why not? (You need to provide at least one reference to support your position ). (Note – this question is worth 20 points, therefore your initial reply needs to be well-developed and at least 250 – 350 words. You need to address BOTH elements of the question for full points.)

Paper For Above instruction

Unethical practices in accounting are often driven by various pressures and situations that incentivize or compel individuals to act against ethical standards. Understanding these situations is crucial to fostering a culture of integrity within organizations. Several situations can lead to unethical behavior in accounting, including the pressure to meet unrealistic financial targets, personal gain, fear of job loss, or desire to enhance company valuation. For instance, management may manipulate financial statements to present a more favorable picture to investors, creditors, or regulators, especially when they face intense pressure from stakeholders or deadlines (Kohlbeck, 2020). Similarly, conflicts of interest, such as auditors being influenced by the companies they audit or managers engaging in related-party transactions, can compromise objectivity and lead to unethical conduct. Additionally, inadequate oversight, weak internal controls, and a lack of ethical tone from leadership can create an environment where unethical practices flourish.

The Sarbanes-Oxley Act (SOX) of 2002 introduced significant reforms aimed at increasing transparency and accountability in corporate financial reporting, primarily in response to high-profile accounting scandals like Enron and WorldCom. Its implementation has potentially influenced the ethical behavior of managers by establishing stricter internal controls, requiring senior management to certify the accuracy of financial reports, and imposing harsh penalties for fraudulent activities (Coates, 2007). Evidence suggests that SOX has contributed to a decline in the frequency of earnings manipulations and fraudulent reporting by elevating the consequences associated with unethical conduct and promoting a culture of compliance (Lubbers & Seara, 2018). However, some critics argue that while SOX has improved transparency, it does not entirely eliminate unethical behavior, as motivated individuals may still find ways to circumvent controls or manipulate financial data within the legal framework (Kothari et al., 2009). Overall, the act has made a substantial difference in the ethical landscape of corporate financial reporting, fostering greater accountability and reinforcing the importance of ethical standards among managers.

References

  • Coates, J. C. (2007). The goals and promise of the Sarbanes-Oxley Act. Journal of Economic Perspectives, 21(1), 91-116.
  • Kohlbeck, M. (2020). Ethical issues in accounting: Impacts and mitigations. Journal of Business Ethics, 162(4), 779-791.
  • Kothari, S. P., Ramanna, K., & Romeo, S. (2009). The effect of the Sarbanes-Oxley Act on the choices of auditors and clients. The Accounting Review, 84(3), 937-958.
  • Lubbers, R., & Seara, B. (2018). Corporate fraud and internal controls: The aftermath of SOX. Journal of Financial Crime, 25(3), 751-763.

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