Situations that might lead to unethical practices and behavior in accounting
Opportunity is one aspect that may lead to unethical practice in accounting. Accountants normally encounter or are involved in transactions that have large sums of money changing hands. As such, the constant access to this money may provide the best opportunity for an individual to start siphoning small amounts of money, which cannot be easily recognized since the transactions deal with huge amounts of money. For instance, in transactions that involve billions, an accountant may decide to be siphoning as little as 100 dollars. Increasing financial needs make people to seek opportunities that may lead to unethical practices.
Greed forms a common source for an individual to engage in unethical accounting practices. The desire to have large amounts of money may lead to certain people to manipulate accounting records for the purposes of gaining another persons or corporation funds. This unethical behavior is more prevalent in the corporate world as people justify their actions on the basis that no one is getting physically hurt. Some people will even indicate that they only took from rich accounts.
Unethical practices may emanate from ignorance of individual (Oseni, 2011). This may be due to lack of knowledge concerning tax laws and regulations on issues such as insider trading. This is most common among inexperienced traders and businesspersons. Additionally, if an organization or corporation is normally involved in unethical behaviors an individual may be inclined to think that that is the norm of conducting business. When such a person leaves such a company, he may continue to apply such techniques, which may lead one losing the key aspects of the accounting profession.
Companies may be involved in reporting inaccurate information to ensure that they have continued positive relations with the investors (Ashe and Nealy, 2010). This is common in cases where the organization may reward an individual for knowingly committing unethical actions. The Sarbanes-Oxley Act seeks to protect investors from corporations that provide inaccurate financial information.
Effect of the Sarbanes-Oxley Act of 2002 on financial statements
The Sarbanes-Oxley Act of 2002 has resulted to implementing measures that are more stringent in the way companies report their financial statements. The act contains a section that deals with corporate responsibility in financial reporting. This section (302) of the Act ensures that the financial report does not contain any false statements that may be misleading. CFOs of companies now pay additional attention before releasing any financial statements to investors, since based on the Act in the case of any misconduct that necessitates the company to restate its financial statements, the CFO will be charged with the burden of compensating the company.
The SOX Act provides for audit committees that govern the internal control of financial reporting. Additionally, the audits also need to be done by an external registered auditor. Auditing becomes a challenge for the small companies due to limitations of the number of staff members.
Since the financial statements in United States differ from most of the foreign financial statements, the SOX Act provides rules and regulations that need to be followed for companies seeking to present their financial statements to be in accordance with Generally Accepted Accounting Procedures (GAAP).
Discuss areas or companies that have applied SOX act and have experienced an increase in growth and performance.
Ashe, C., & Nealy, C. (2010). Ethical Standards and Accounting Practices: Still an Area for Concern. Journal of International Business Disciplines, 5(1), 1-12.
Oseni, A. I. (2011). Unethical Behavior by Professional Accountant in an Organization. Research Journal of Finance and Accounting, 2(2), 1-8.