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September 23, 2013

Essay on Impact of Unethical Behavior and Practices in Accounting

Impact of Unethical Behavior and Practices in Accounting
The advent of 21st century has brought with it a plethora of financial irregularities and unethical practices on the part of accountants. It goes without saying that the impact of unethical behavior and practices elicits a far-reaching impact on the entire industry. However, the ethical breakdown is a cause of concern for in the industry. There are various given reasons that lead to such unethical behavior namely the social ones.
Joseph Fletcher contended that there are only three probable approaches to ethics, specifically the legalistic approach, the antinomian approach and the situational approach. Legalistic ethics has a set of already manufactured more rules of laws and it provides the basis of many western religions of ethics.(Fletcher, 2010)
Antinomian ethics treats each decision as if it was unique and spontaneity is the cause of any unethical decision.
Situational ethics is based on altruism which is putting others before yourself. The professional code of ethics of the accounting professions hinges on the legalistic approach to ethics.  According to Parsons (1964), professions developed as a peculiar social structure based on superior technical knowledge, though not necessarily on a superior social status or high moral character.

Lord and DeZoort (2001) propose that accountants are vulnerable to unwanted social pressure from superiors and peers within the accounting firm. However, they concede to the fact that social influence pressure continues to be the least addressed issue in the accounting industry. We delve into two types of social influence pressure, obedience pressure and conformity pressure (Lord and DeZoort, 2001; Davis et al, 2006). Obedience pressure ensues from being pressured to follow instructions made by those in positions of authority (Brehm & Kassin, 1990; Davis et al., 2006; DeZoort and Lord, 1994).
Research has revealed that accountants are on the verge of making unethical decision when they undergo obedience pressure.
Lord and DeZoort (2001) explain conformity pressure as pressure created by equals and peers, and not by instructions from authority spearheads. Conformity takes place when individuals are afraid of the consequences of being different. In such a situation, they opt to act in socially approved way so as not to stand out from others. Given the absence of an authority figure, conformity pressure will less likely impact behavior than obedience pressure.(Lord and DeZoort, 2001).

Effects of Sarbanes-Oxley Act

The Sarbanes–Oxley Act of 2002  also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH).
The Act left a far-reaching impact on the accounting industry in the country. Though this was seen a welcoming act because it benefited the firms and investors but it also drew sharp criticism from the accounting firms and influential congressman.

Congressman Ron Paul and others such as former Arkansas governor Mike Huckabee aruged that SOX was an unwanted and costly government meddling into corporate management that places U.S. corporations at a competitive disadvantage with foreign firms, causing loss of business in United States as well.
Paul stated, "These regulations are damaging American capital markets by providing an incentive for small US firms and foreign firms to deregister from US stock exchanges.”(Lord, 2001)  According to a study by a researcher at the Wharton Business School, the number of American companies who chose to opt out of public stock exchanges almost trebled during the phase when Sarbanes–Oxley was enacted. In 2004, the New York Stock Exchange was merely reduced to 10 new foreign listings.

Lord, A.T. & DeZoort, F.T. (2001). The impact of commitment and moral reasoning on auditors’ responses to social influence pressure. Accounting, Organizations and Society, Vol. 26, pp. 215-235.
Brehm, S.S. and Kassin, S.M. (1990) Social psychology. Boston: Houghton Miffin Co.
Fletcher, J. (1966) Situation Ethics: The New Morality, Philadelphia: Westminster Press.


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