Business Ethics Paper

Business Ethics Paper - Florida International University...

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Florida International University Business Ethics The Sarbanes-Oxley Act of 2002 To succeed in the business world today, an organization must continuously implement and maintain adequate control of their various business functions. Whether it may be in the form of marketing, human resources or customer service, all organizational departments must be calibrated and working towards one common goal. Undoubtedly, one of the vital managerial functions in any business today, is the accounting function. The Merriam-Webster Dictionary defines accounting as “the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results.” The key to any business lies within its financials, and those in control of them often have the means to do good or grave harm. The Sarbanes-Oxley Act of 2002 was a government response to the unethical practices by major accounting firms, and mandated new requirements for corporate responsibility and accountability, auditor conflict of interest, and enhanced the penalties of white collar crime in the United States. The definition of accounting stated above seems simple and logical to most but in actuality, poses an ethical question in business. According to this fundamental definition of accounting, the very same entity that is “recording and summarizing” business data and transactions is at the same time “analyzing, verifying and reporting” their results. How does this create a question of ethics? In the American capital market, private citizens are able to invest personal funds by purchasing shares (stocks) in publically traded corporations. Millions use this trusted system as a reliable form of personal and educational savings, private investment and retirement income. The entire system is supported by a belief in the “financial health” of these publically traded firms. This financial health is evidenced through the corporation’s income
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statements, balance sheets, P & L reports and other key financial statements. Private Citizens and investors alike rigorously analyze these statements and make decisions of whether to invest (buy or sell) in the company or not. Needless to say, one quarter of bad financial statements could send a top firm’s stock (ultimately the company’s valuation) spiraling downward. Unfortunately, the burden is ultimately placed on those “analyzing, verifying, and reporting” the financial statements. When placed in context, it becomes easy to see how accounting and auditing firms may be driven to assist in purposely providing misinterpreted or limited financial information for the corporations that employ them. The events of the year 2001 would prove the importance of honest accounting and would change the American capital market forever. By the end of 2001, the accounting and auditing scandals of the Enron, Sunbeam and WorldCom corporations would lead to the largest bankruptcy scandals in American history. In the Enron scandal, once the shady practices of their management and accounting firm were
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This note was uploaded on 11/06/2011 for the course MAN 4065 taught by Professor Smith during the Fall '10 term at FIU.

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Business Ethics Paper - Florida International University...

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