Effect Of Unethical Behavior

Accounting information is very crucial to potential investors as it provides them with relevant investment information. Per se, they are able to determine in which firms they would be able to reap more profits in case they invested in them. Therefore, it is a very common feature to find unethical behavior in accounting in an attempt to attract and retain investors. Unethical practices surface themselves in different forms since there are different factors that motivate such. One major situation that leads to unethical behavior is misuse of funds. In an organization where financial managers are untrustworthy, company funds are prone to misuse. Such misuse consequently may lead to reflection of huge losses in the books of accounts. This factor drives investors away. To curb this, the financial officers may alter the books of accounts to show erroneous figures, which is unethical.

In 2002, fraud in business was really affecting organizations and legal involvement was necessary to curb this (Cunningham 2003). Coincidentally, enactment of Sarbanes Oxley act was on the same year. The main objective of the act was to put off the counterfeit business activities that were taking place. Organizations fashioned phony financial statements in an aim of raising the price of their stocks to be a focus for many investors. This drew many investors both local and international to invest in the companies with the hope of reaping huge benefits. Such companies however only led to their investors incurring losses and being declared bankrupt and hence their closure. Enron Company was especially one of the affected by this art of using false financial information. Thereafter, Global Crossing Company followed suit going down too. It however did survive in the market after the Enron Company as it had subdivisions from where it siphoned funds. MCL and Xerox; subdivisions of Global Crossing, in a while went down.

Soon after the fall of the above companies, their competitors and other companies that had falsified their financial statements restated their statements due to the fear of going bankrupt and closure. The fall of the companies negatively affected the stock market. It led to the desertion of about $6 trillion worth of stock market value. However, this gave the companies that remained in the market an advantage. Investors from the affected companies shifted their investments to the firms that were still stable in the market. Other than the disappearance of funds worth stock value, many employees lost their jobs. Over 5000 people that worked in the companies that closed down were jobless after the fall of their employing companies.

Has the establishment of the Sarbanes Oxley act of 2002 help curb falsification of the financial statements in organizations? The act is able to control the accounting activities of organizations directly. It requires firms to legislate internal laws to offset treachery and swindle by officers heading finance matters such as accountants, auditors, Chief Executive Officers, and financial personnel (Cunningham 2003). The internal laws should be able to ensure fidelity and credibility of the officers during preparation and presentation of the financial statements. Sarbanes Oxley act however is not fully effective. The fact that the embezzlement that was taking place in Lehman Brothers Holding Inc, a firm proving financial services, discovered in 2011 proves this. After investigations, there were conclusions drawn that the outrage had commenced from 2000. The company was hiding a debt of 155 billion in bonds.

References

Cunningham, L. (2003). The Appeal and Limits of Internal Controls to Fight Fraud, Terrorism. California: Cengage Learning.