Accounting and Financial Statements (Ethics)
FASB “[strives] to establish neutral accounting standards that provide a picture of a company’s financial position and its results of operations in a way that is unbiased and as complete and faithful as possible” (Foster).
Sarbanes-Oxley Act
On July 30, President Bush signed into law the Sarbanes-Oxley Act of 2002. The Act radically redesigns federal regulation of public company corporate governance and reporting obligations. It also significantly tightens accountability standards for directors and officers, auditors, securities analysts and legal counsel. The act has impacted the accounting community to a great extent. Specifically, Title III Corporate responsibility, Section 302 Corporate responsibility for financial reporting; and Title IV Enhanced Financial Disclosure, Section 404 Management Assessment of Internal Controls.
• Sec. 302. Financial Responsibility
Section 302 of the Sarbanes-Oxley Act of 2002 covers the corporate responsibility for financial reports. It states that the CEO and CFO of each issuer shall prepare a statement to accompany the audit report to certify the "appropriateness of the financial statements and disclosures contained in the periodic report, and that those financial statements and disclosures fairly present, in all material respects’, the operations and financial condition of the issuer." This also includes responsibility of the signing officer over internal controls and any recent changes within the company. A violation of this section must be knowing and intentional to give rise to liability. Certifying officers will face penalties for false certification of $1,000,000 and/or up to 10 years’ imprisonment for “knowing” violation and $5,000,000 and/or up to 20 years’ imprisonment for “willing” violation (www.aicpa.org/info/sarbanes_oxley_summary.htm).
• Sec. 404. Management Assessment of Internal Controls
This section requires that each annual report has to contain an internal control which shall state the responsibilities of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting. It also must contain an assessment, as of the end of the issuer’s fiscal year, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting. Each issuer’s auditor has to attest to, and report on, the assessment made by the management of the issuer. An attestation made under this section has to be in accordance with the standards for attestation engagements issued of adopted by the Board (www.AICPA.org).
Accounting Scandals
Over the last few years, accounting scandals have become apart of our everyday lives. Since the collapse of utility giant Enron, a multitude of other accounting scandals and misstatements have come to light. Large firms such as Tyco, WorldCom, Xerox and Health South have all been charged with some sort of accounting violation. Most, if not all of these frauds have occurred because of unethical decisions made by some member of the upper level management. All of the frauds that have occurred recently have been scrutinized in detail by the media, but there was a fraud that occurred here in Ohio [next page]