Ethical and unethical issues in finance.

                                                                                                                                                                                                                                                                                                                              

Ethics (maintaining true and fair statements) is a key part of financial reporting. For shareholders to trust a company with money, they must feel confident in the company’s financial reporting. Financial reporting presents all data relating to the entity’s current, historical and projected health meaning investors and shareholders rely upon the available financial data for making informed and educated decisions. To help entities comply with business regulations and maintain financial reporting, shareholders can trust the existing organizations designed to watchdog different aspects of the accounting world. Primary among the organizations are the Securities and Exchange Committee (SEC), Financial Accounting Standards Board (FASB) and Public Company Accounting Oversight Board (PCAOB). These three bodies together ensure financial reporting is fair, reliable, and available to all investors.

Financial Manager

The specific importance of ethics in business and in financial reporting is to inspire and ensure public and investor confidence in companies. Without a strong code of ethics, and adherence to that code, individuals may not be certain their investments are secure. Accounting professionals must have a strong ethical and moral reasoning as their decisions regarding financial reporting can have major consequences for individuals as well as corporations and entire nations. Ethics in the business environment are more than just issues that relate to accounting; because ethical practices can and will cross boundaries from business practice in to what a company may ask its accounting professionals to do in financial record-keeping and recording. The many recent scandals involving accounting fraud generally began at the CEO and made their way down into the financial records.

Financial Managers

Before the Sarbanes-Oxley Act, various financial abuses such as World Com, Enron, and Adelphia Communications plagued the American public and affected economic health of the entire nation adversely. Most of these frauds stemmed from unethical accounting practices instituted at the highest levels of the corporations, but carried out in the financial reporting practices of public accounting firms. In December 2001, Enron, which used to be one of the world’s leading energy companies once, filed the largest bankruptcy in the history of the U.S., using the retirement accounts of thousands of American workers, to enrich those at the highest levels of the corporation. Using thousands of off-the-records partnerships to hide nearly $1 billion in debt and to inflate profits, company had defrauded shareholders of billions. Due to these scandals, President Bush and Congress were forced to take tough stance in the form of the Sarbanes-Oxley Act in July of 2002.

When ethics seem to be on the downfall in a society, the common man naturally turns to the government for guidance. Various crises in the history of the United States have led to creation of several regulatory bodies and laws. The three entities in the US, mentioned above, work closely together to ensure financial accounting is honest. While these three bodies work together, they rely on cooperation from member companies and from participation from “whistle-blowers” in companies and public citizens. As the Enron collapse illustrated, there were systemic failures in the private-sector watchdog-groups. The SEC and the PCAOB must work closely together and include way to fast-track criminal cases.