Ethical behavior of employees within the organization
Note: Read the lesson and then answer the discussion.
What lessons can we learn from the recent business scandals? What ethical principles were violated and what can be done to lessen the chance of future business scandals? There are many factors that contributed to the high‐profile business scandals such as Enron, WorldCom, Madoff, real estate, and the savings and loan failures. Some of these factors and the lessons we can learn from them are:
Having learned some lessons from recent business scandals we may be better prepared to understand how they happened and what can be done to improve the situation in the future. Congress passed new legislation in response to the latest round of business scandals. The most important legislation was the Sarbanes‐Oxley Act of 2002 which added many regulations for companies and auditors. This is not the first time that the government has stepped in to regulate the accounting profession. For example, the Securities and Exchange Commission (SEC) was established to regulate the stock market after some unethical business practices. After the stock market crash of 1929, the SEC was created in 1934 to restore public confidence in the capital markets. Let’s take a look at the latest legislation—Sarbanes‐Oxley.
As a result of the business scandals Congress changed the rules for accountants by passing the Sarbanes‐Oxley legislation. The Sarbanes‐Oxley Act of 2002 contains the following sections:
The Public Company Accounting Oversight Board (PCAOB) added many new regulations for companies that trade stock on the public stock exchanges. The duties of the PCAOB are to:
The U.S. Supreme Court is reviewing the Sarbanes‐Oxley legislation and may decide reduce the authority of the PCAOB. If any Supreme Court rulings do affect the Sarbanes‐Oxley legislation then Congress would need to change the regulations. Perhaps an overall lesson from the business scandals is that ethical behavior cannot be legislated. While ethical standards and effective internal controls can increase the likelihood of ethical behavior, making rules and regulations can never completely prevent fraud.
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