"Review of Accounting Ethics"

Name

ACC 557

Date

Instructor





Review of Accounting Ethics

Ethics is a very important aspect of accounting and should be taken very seriously as accountant.
Shareholders, potential shareholders, and other users of the financial statements rely heavily on
the yearly financial statements of a company as they can use this information to make an
informed decision about investment. The opinions of the accountants who prepared the
statements, as well as the auditors that verified it, to present a true and fair view of the company.
Knowledge of ethics can help accountants and auditors to overcome ethical dilemmas, allowing
for the right choice that, although it may not benefit the company, will benefit the public who
relies on the accountant/auditor's reporting.
As part of the largest financial fraud in U.S. history involving mega thief Bernard Madoff, a
New York auditor, David Friehling is facing jail time for deceiving investors by signing off on
fraudulent financial statements. Mr. Friehling, 49 years old, worked for Mr. Madoff from 1991
to 2008, running his storefront operation out of an ordinary office in New City, a suburb of New
York City, N.Y.
Mr. Friehling is to convicted of charges including aiding and abetting investment adviser fraud,
securities fraud and four counts filing false audit reports to the United States Securities and
Exchange Commission. It was also found by the United States Securities and Exchange
Commission that Friehling and his family had $14 million invested in the Mr. Madoffs firm
which violates auditing rules and standards. It is believed that Friehling is facing up to 105 years
in prison for the breaches of accounting professionalism, along with a definite loss of his
accounting license. Friehling also claims he had no idea of the Ponzi scheme and had no
intention of breaching accounting violations. (Bizcovering 2010)
With all of the signing and approving of false documents eventually something or someone was
bound to find a flaw in the documents, which was the case here. Accountants have a
responsibility and a duty to properly inspect all financial statements because they are held
responsible and liable for any mishaps with those documents. In this case the securities exchange
commission researched and noticed that Friehling got $186,000 a year from Bernard Madoff for
doing nothing and never conducting a legitimate audit, never confirming the company's
securities existed, and never examining Madoff account where billions of dollars were
funneled. In my opinion that was pretty sloppy wanting more and more money. An important
step in establishing an ethical culture is to assure that all individuals, especially newcomers,
know about and understand the laws, rules, and values which should guide their behavior.
Management has to take some of the blame because of the environment that they created there
with the employees. Apparently the consequences within the company were not severe enough
to keep the employees honest when reporting financial statements. Law abidingness is a moral
imperative for executives in the public eye. There is no surer way to a front page scandal than
violations of law, even technical ones. It should be continuously emphasized that laws cannot
replace the need for a sensitive conscience of the moral obligation to adhere to traditional ethical
principles. In order to encourage good faith acceptance of the moral obligation to abide by both
the letter and the spirit of the law, every opportunity should be used to clarify the reasons for the
rules and the importance of the appearance of impropriety test.
Ethical breaches vividly illustrate the damage that can occur when the leader of a company
chooses to act in an unscrupulous manner. The profound lack of ethics on display can
cost employees, officers and shareholders dearly. To circumvent such problems, it is important
for top management to set a good example. After all, an environment conducive to high ethical
standards is good for business. Companies that behave ethically are rewarded in the form of
loyalty, honesty and productivity from employees, customers and suppliers. A company lacking
ethical standards is destined to fail. As professionals, accountants are expected to maintain
higher standards than in general society. Doing business relies a great deal on reputation which is
vital to success of a company.
New technologies have impacted business because information is more easily accessible and
more universally available. There are more reporters and people reporting news that the scandals
are becoming known worldwide because there are more reporters reporting the crimes.
Technology has made news about scandals mainstream and more available to public scrutiny
than ever. There is no hiding anymore. Most companies have a code of ethics to encourage
employees to behave ethically, but that is not enough. Owners and managers must set a high
ethical tone and make it clear that unethical behavior will not be tolerated.
As a CFO, you an enormous amount of responsibility and you have to find ways to alleviate
some of that responsibility. First starting with what matters and thats how a company practices
ethical principles on a daily basis. The ethical framework has to be tangible in a companys daily
conduct. Nothing underscores a message as forcefully as when a company takes a stance on an
issue that has lasting ethical implications. It is of paramount importance that employees and staff
get a consistent message from the top leaders and that these values are aligned. Everything seems
to start at the top with upper management and authority. Management sets the rules and the
standards, as well as consequences that its employees ultimately have to follow. So I believe
thats where it ends and begins.



Reference:
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2012). Financial accounting. (8th ed.). Hoboken,
NJ: John Wiley & Sons.
One news(2008). Accountants admit breach of ethics, retrieved October 19, 2012, from
http://tvnz.co.nz/content/1871902/425823/article.html
Bizcovering(2010). A Breach of Professional Accounting Ethics, retrieved October 24, 2012,
from http://bizcovering.com/accounting/a-breach-of-professional-accounting-ethics/
Gini, A. (2005). Case studies in business ethics (5th ed.). Upper Saddle River,
NJ: Prentice Hall.