Ratio Analysis and Statement of Cash Flows Paper

Ethics Article Review

Ethics Article Review

In his article on accounting ethics, Thea Mann (2006) states that ethics “is a key part of financial reporting.” His article explains that financial reporting lays out all the information pertaining to a company’s history and that the shareholders and investors rely on the accuracy of this information in order to make “informed, educated decisions.” He makes two statements that sum the entire matter up. Mann (2006) declares that “The importance of ethics in business, and specifically in financial reporting is to inspire and ensure public and investor confidence in entities.” He further states that “Accounting professionals must have a strong grounding in ethical and moral reasoning as their decisions regarding financial reporting can have devastating consequences not just for individuals but also for corporations and entire nations.” The truthfulness of these statements have been borne out many times in recent years.

The article maintains that organizations need several watchdogs to keep them accountable. The three that he feels do the most to guard investors are the Financial Accounting Standards Board (FASB), the Securities and Exchange Committee (SEC), and the Public Company Accounting Oversight Board (PCAOB). He goes on to say however, that until the passage of the Sarbanes-Oxley Act the misuse and abuse of financial trust “plagued the American public and delivered hard punches to the economic health of the entire nation” (Mann, 2006).

This article stressed the concepts that the reading this week also pointed out. Investors, stockholders, and the public expect that financial reports and financial statements are accurate. There can be mistakes. These can be problems and these problems can be simple errors, they can be caused by disagreements, or they can be fraud (Albrecht, Stice, Stice, and Swain, 2005).

All entities within a business need to be protected against fraudulent activity and the accounting systems can only protect against a certain amount of that.

It was because of the shortcoming of these systems and the large public disclosure of fraud on a massive scale in many high profile organizations that the Sarbanes-Oxley Act was passed by Congress. This act established an independent board of five full-time members to “oversee the accounting and auditing profession” (Albrecht, et all, 2005), it put constraints on auditors and on company management. In the words of the text the act “increased the responsibilities of public companies and their auditors in ensuring that financial reports are accurate.

The Sarbanes-Oxley Act establishes the Public Company Accounting Oversight Board, or PCAOB, “which is charged with overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies”(CFO Strategies, Inc, 2007). The Act enforces other issues that will guarantee “auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure” (CFO Strategies, Inc, 2007). Compliance with the Act is now overseen by two regulatory bodies: the Securities and Exchange Commission (SEC) for public companies and the Public Company Accounting Oversight Board (PCAOB), a nonprofit corporation that is a private company that was created by the Act itself, for their own independent