Unethical Practices and Behavior in Accounting

The unethical practices and behavior in accounting process in an organization basically happens with misleading financial analysis for personal gain, misuse of funds, stealing the revenue, and understating the expenses. This unethical practices and behavior also provide false statement of the value of corporate assets or underreporting the liabilities for misleading the investors.  At the same time, financial executive also involves in other unethical practices such as insider trading, securities fraud, bribery, illegal payments and manipulation in the financial information data in the market.

For example, the unethical practices and behavior happened in WorldCom Corporation in 2003. WorldCom Corporation was originally formed as a result of the merger of WorldCom and MCI Communications. This unethical practice was revealed in 2002, when company’s internal auditing process discovered the improperly recorded profits on its books from 1999 to 2002. WorldCom said that most of the irregularity involved in the manipulation of reserves (Jennings, 2011). In this, the declining financial condition and the responsible factors for accounting scandals in WorldCom were associated with illegal activity of WorldCom’s internal audit department.

Moreover, the organization’s growth strategy through acquisitions, its loans to senior executives and poor corporate governance had all contributed to fall of the company and chances of unethical practices and behavior in accounting. The business strategy of Bernie Ebbers (CEO) for achieving impressive growth through acquisitions and apparent desire to build and protect their personal financial condition was also responsible for unethical practices and behavior in accounting (Boudreau, 2008). Furthermore, the major accounting misstatements of accounting management to hide the perilous financial condition of the company were also the responsible factor for unethical practices and behavior in WorldCom.

Effect of Sarbanes-Oxley Act

The Sarbanes- Oxley Act of 2002 has described in section 404 that is most extensive provision for financial accounting statements in USA. This section stated that every company must document and attest the accounting statements for the effectiveness of all their internal financial controls. These internal controls are the safeguards that are part of a firm’s financial operations to ensure effectiveness its operations to perform uniformly and for developing capability to detect errors and frauds. In this concern, the effect of this act is seen as excessive auditing fees in several organizations (Bisoux, 2005).  In this, most of the money of several organizations gone to pay for the new IT systems and extra employee time required to put new internal control systems into effect. For example, in a survey of CFO.com in 2005, in USA explained that this new rule has increased the expenses more than $1 billion in large organizations for their accounting operations per annum and this cost has increased an average 52% per annum. It also revealed that midsized companies cost has increased 81% per annum on preparation and control over financial statements. But, this act is a safest provision to save the company from bankruptcy according to the CFO.com survey.

Thus, the question arises for the WorldCom according to this act “Is this new act could have helpful for WorldCom to save the organization from accounting scandals?”

References

• Bisoux, T. (2005). The Sarbanes-Oxley. Retrieved from http://www.aacsb.edu/publications/archives/julyaug05/p24-29.pdf
• Boudreau, A. (2008). WorldCom Scandal: Impact of Organizational Behavior on Company Failure. Retrieved from http://alexboudreau.files.wordpress.com/2009/11/worldcom-scandal-ethical-implications-boudreau-2008.pdf
• Jennings, M.M. (2011) Business Ethics: Case Studies and Selected Readings. USA: Cengage Learning.